LETTER: Theory only works in US
Inflation is too high in SA for low interest rates
In his interesting article on modern monetary theory (“New Way to Tackle Economic Challenges,” March 19), Duma Gqubule makes the case for a new monetary policy rule that would ensure interest rates are lower than the GDP growth rate. The problem with his proposal is that SA has a high level of inflation (4% to 5%) and a very low rate of economic growth (0.8% in 2018). Modern monetary theory only works for economies, such as those of the US, with very low inflation (1% to 2%) and relatively high rates of economic growth (2% to 3%). The US Federal Reserve is thus able to keep interest rates low through quantitative easing because the rate of inflation is lower than the rate of economic growth. Sadly, such favourable economic conditions do not exist in SA. Maurizio Passerin d’EntrevesProfessor Emeritus, University of Cape Town
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