“We are facing the twin dilemmas of an inflation rate above our target and very low growth,” says newly appointed SARB Governor Lesetja Kganyago. “But I’m up for the challenge!”
Protecting the value of the rand = long-term, sustainable growth
Kganyago was instrumental in setting up inflation targeting as a tool to craft monetary policy and protect the value of the rand. “Inflation targeting has been pretty effective,” says Kganyago. “In adopting inflation targeting we were implementing the constitutional mandate of the South African Reserve Bank. That mandate is clear: we must protect the value of the rand in the interest of balanced and sustainable growth in the Republic.”
The new governor doesn’t believe we can rely only on low interest rates and the Reserve Bank alone to lift economic growth and advocates for structural reform of micro policy elsewhere in Government.
“Ensuring low inflation and stimulating sustainable economic growth are not competing objectives”, says Kganyago. “There might be a trade-off in the short-term, but not so when you take the long view. We must protect the value of the rand! It’s our mandate and it’s necessary for achieving good quality growth over long terms.”
Inflation affects poor people disproportionately
“Protecting the value of the rand entails protecting what the rand in your pocket can buy. This buying power erodes due to inflation; in other words, when prices rise. High inflation – or the falling value of the rand – affects poor people and those on fixed incomes disproportionately.