WATCH: South African Reserve Bank Governor Lesetja Kganyago talks inflation targeting
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SOUTH African Reserve Bank Governor Lesetja Kganyago will deliver a virtual keynote address on 21 years of inflation targeting. Kganyago was invited by the University of Stellenbosch to speak. The address will be live-streamed from 12.45pm to 2pm. Watch here.
The Reserve Bank has been controlling inflation, so that it doesn't “shoot through the roof“. For many years inflation has been relatively low.
The Reserve Bank's policy of inflation targeting involves raising interest rates when inflation rises.
But while acknowledging an increased inflation risk, the Reserve Bank did not raise interest rates at its most recent monetary policy committee (MPC) meeting.
However, all indications are that we have reached the bottom point in the interest rate cycle and that rates will rise gradually from next year.
Between 1975 and 1993, inflation in South Africa remained well above 10%, peaking at more than 20% in the mid-’80s. After 1994, the Reserve Bank introduced its policy of inflation targeting, and things were slowly brought under control. There were two peaks of above 10% in the 2000s but, since 2010, inflation has remained pretty much within the target range, averaging about 4% in recent years.
Although advantageous for consumers with debt or home loans, low interest rates are detrimental for savers and pensioners living off the proceeds of their savings. If interest rates remain low while inflation rises, which is happening, it’s a double whammy for them.
BUSINESS REPORT ONLINE