With reference to Prof Ben Turok's “insights” into the so-called debate on the independence and mandate of the SA Reserve Bank, it is universally accepted that a rate of inflation that is too high is the greatest danger to a stable economy, and while its effects are damaging on the savings of rich and poor alike, they are particularly devastating to the lives of the poor (Reserve Bank Can Stimulate Economy in Many Ways, June 14).
Just think Zimbabwe and Venezuela. Inflation above 3% is unacceptable in that it approaches a danger zone and must be monitored and countered as a priority. Therefore, if Prof Turok is suggesting sacrificing some inflation for growth he is wrong on two counts.
First, it is a slippery slope that cannot be countenanced, and second, there is no guarantee that easier monetary policy will produce growth in our yet unreformed structurally defective economy, since it is unlikely that investors will take up cheaper money absent demand and confidence. Comparing us with countries that have 1%-2% inflation and already low interest rates which, if anything, are more concerned with deflation than inflation, serves no purpose.
Having said that, the theory that keeping interest rates high to combat our inflation, which is cost push and not demand pull, is highly debatable, so it is valid to argue against high interest rates, but not against the priority of low inflation.
The Bank’s mandate must be, as a first priority, to maintain price stability and then to support the real economy, as is set out in the constitution.