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Change the world

30/06/2023

The South African Reserve Bank faces a constant battle against the repercussions of the US Federal Reserve Bank’s apparent difficulty in understanding monetary policy dynamics. This has unleashed adverse effects on central banks worldwide. An examination of the complexity of monetary policy should gain respect for the Reserve Bank as one of the best-run central banks on the continent.

To understand conventional monetary policy dynamics, imagine a central bank as a person vertically balancing a metrestick (inflation) only using the fingertips on one hand as a metaphor for interest rates. As the metrestick leans forward, the central bank must swiftly move its hand in the same direction to push the stick back to equilibrium. The opposite happens when the metrestick tilts backwards.

Acting decisively is crucial, as hesitation could lead to a catastrophic loss of control. Thankfully, the SA Reserve Bank is fully autonomous, providing it with the freedom to execute its balancing act.

Read the full article by Prof Andrew Phiri published in the Daily Maverick on 29 June 2023.

 

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