HILARY JOFFE: Will the Treasury buy a lower inflation target?
While a reduced inflation goal could cut high debt cost, it would worsen fiscal ratios and shrink tax revenues
As Reserve Bank governor Lesetja Kganyago often reminds us, no-one likes a high cost of living and inflation is a tax on the poor. The Bank is now conducting an active campaign to cut SA’s inflation target to 3%. But it may find it easier to win the hearts and minds of the public than the support of the Treasury, which is still mulling the mixed impact on public finances.
On the one hand, a lower inflation target could significantly cut government’s high cost of debt, particularly over the longer term. On the other hand, it would worsen the fiscal ratios and shrink tax revenues in the next few years. To get the full benefit the Treasury would also have to shift its borrowing strategy significantly at a tough time...
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