Move to keep inflation at 4.5% yielding positive results, says Kganyago
Reserve Bank Governor Lesetja Kganyago believes the move to peg consumer inflation at 4.5% has yielded positive results.
Kganyago gave a lecture on Thursday on how the central bank moved inflation to 4.5 per cent and what it cost.
Speaking at the University of Stellenbosch, he said that since 2017, they have aimed for the middle of their inflation target range.
"This experience demonstrated some lessons that remain important today. These are lessons about the costs of lower inflation, about structural factors like high administered prices, and about the role of monetary policy in shaping trend inflation. "
Kganyago said economists found no reduction in aggregate demand as a result of the move to 4.5%.
“Growth in GDP is in line with the counterfactual, unemployment is generally unaffected, but credit extension is higher.”
In September, the Reserve Bank cut the repo rate by 25 basis points, bringing it to 8% and the prime rate to 11.50%.
Kganyago said administered prices make up 16% of Gross Domestic Product, a fact which is often ignored.
"Yes, administered price inflation is too high and damaging for the economy. Yes, if it were lower, that would help deliver lower inflation and lower interest rates.
"But administered prices are also responsive to economy-wide inflation, and they are not such a large part of the basket that disinflation can only be achieved by forcing everyone else into deflation."
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