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Monetary Policy: Bitter medicine


South Africa: PITY the Reserve Bank, forced to hike interest rates by 50 basis points, possibly triggering a recession, when the real burden of adjustment should be falling on tighter fiscal policy through cuts in government spending.

This is the view of several economists in response to the Bank’s decision last week to raise the repo rate to 6.75% in the face of a huge deterioration in the inflation outlook.

The Bank now expects inflation, driven mostly by rand weakness and a rapid rise in food price inflation, to remain above the 6% upper limit of the target band for the next two years.

Inflation is expected to average 6.8% in 2016 and 7% in 2017 (6% and 5.8% forecast previously) and to peak at 7.8% by the end of this year and into 2017.

Source: Financial Mail