The Reserve Bank’s inflation targeting framework is the best way to support growth in the medium term, according to deputy governor Daniel Mminele.
Instead of changing the Bank’s mandate, “it appears to us that a strategy of limiting inflation volatility and hence the risk premium embedded in the cost of capital in SA is the best approach to support medium-term economic growth,” Mminele said in a speech posted on the Bank’s website on Tuesday evening.
The debate around the Bank’s mandate entered the public domain when the ANC released an election manifesto on January 12, which stated that policy makers should consider growth and employment when deciding on policy.
“Alterations to the monetary policy framework at this stage would create the risk of confusion among economic agents and market participants. At worst, it could mean de-anchoring inflation expectations and reversing the gains of the past few years,” he said.
Inflation expectations are showing an “encouraging” decline towards the midpoint of the central bank’s target range, Mminele said.
The Bank expects inflation to average 4.5% this year. Involvement of the Bank in funding development needs could be in conflict with its other mandates and erode trust with the public, Mminele said.
“The Bank certainly has a role to play in the context of growth and development in SA and I would submit that it is indeed playing its appropriate role, in line with its assigned mandate.”
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