Repo rate hike was the wrong move – Stiglitz

The Reserve Bank’s decision to raise its benchmark interest rate in January for the first time in more than five years probably was not the right one, Columbia University professor and Nobel laureate Joseph Stiglitz said at a conference hosted by Discovery Holdings yesterday. Stiglitz said inflation was not being fuelled by domestic demand pressures and higher interest rates would hurt economic growth and jobs. “Raising interest rates is not going to bring the price of oil down,” he said “You can bring the average rate of inflation down, but only by killing the rest of the economy, and the cure is worse than the disease.” Policymakers raised the repo rate by half a percentage point to 5.5 percent on January 29, as they forecast a weaker rand would push inflation above the 3 percent to 6 percent target. “When it’s domestically created excess demand, it’s under those circumstances that one should consider raising interest rates. Given that I don’t see this as demand-driven inflation, I have reservations.” Inflation accelerated for a second month to 5.8 percent in January from 5.4 percent in December last year. – Bloomberg