BRIAN KANTOR: In monetary policy, doing the obvious makes sense
The Reserve Bank’s focus should be on managing the demand side of the economy
The following is a case study in monetary policy. The economy to be investigated is stagnant. Very little growth in GDP is being recorded. Spending on capital goods, plant and equipment is even more subdued than spending by households. Demand for bank credit has not grown in real terms for a number of years. Indeed, it is still below pre-Covid-19 levels, as is economic activity.
Not all of the news is bad. Inflation is well down — prices have hardly increased for six months. But short-term borrowing costs have lagged well behind the declining inflation rate. The difference between the interbank lending rate for three months and annual inflation — real rates — is 4.4 percentage points, a gap not approached since 2003...
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