South African Reserve Bank governor Lesetja Kganyago. Picture: PUXLEY MAKGATHO
South African Reserve Bank governor Lesetja Kganyago. Picture: PUXLEY MAKGATHO

The “bluntness of the SA Reserve Bank’s instruments” is not the problem, but the total delusion about the relevance and significance of monetary policy is! (“Reserve Bank must avoid short road to inflationary oblivion”, June 26).

There is no “careful understanding of the link between the value of the currency [price stability] and economic growth”. In essence, it says balanced and sustainable growth is only possible with price stability. Totally wrong!

“Price stability does not guarantee economic growth” is 100% correct because growth is driven and created by profits, and profits only, which is again driven by the input/output price ratios and the efficiency ratios of all the individual industries in the three sectors of the economy. Economic growth is in fact totally dependent on the profitability of the economy.

“Boosting demand and supply leads to higher prices” — totally wrong because only higher demand and/or lower supply can lead to higher prices, which determines the inflation rate and not interest rates. The Federal Reserve funds rate dropped to almost 0% and yet it was unable to stimulate the US economy. And neither the inflation rate nor the exchange rate can be contained and protected, respectively, by the central banks’ interest rate policy.

There is no evidence whatsoever that the monetary policy claims of all the central banks in the world have a more than negligibly small influence on the inflation and exchange rates or economic growth. Simple statistical analysis has proven that changes in interest rates cannot explain the changes in inflation and exchange rates or economic growth. Monetary policy is, in fact, the biggest fallacy in economic science.

Fanie Brink
Independent agricultural economist