Inflation Targeting and Its Impact on Monetary Policy Post 2008 Crisis: A South African Insight

Year 2019, , 479 - 508, 26.08.2019

Emaad Muhanna Halah Ahmadbey

https://doi.org/10.25095/mufad.607196

Abstract

South Africa Inflation Rate declines to 7-Month Low of 4.5%. The annual inflation rate in South Africa fellto4.5percent in December of 2018, reaching the mid-point of the central bank’s target range of 3 percentto 6 percent, from 5.2 percent in theprevious month. It is the lowest annual inflation since May as cost of transport slowed sharply. The main task of microeconomic policy is the promotion of sustainable high economic growth, the creation of employment opportunities, the containment of inflation, improvement of the living conditions of all residents of a country, and the elimination of unjustifiable discrepancies in the distribution of income amongst our people. These economic objectives can best be obtained amongst other things in a stable financial environment. Financial instability is a major obstacle in the fulfilment of this task. Stable financial conditions should be maintained throughout the various phases of the business cycle to attain maximum economic development. In addition, inflation could only have an effect on the rate of unemployment if it could somehow affect the real wage in the economy. That is not impossible since the real wage is determined by the marginal productivity of labour in a competitive system.

A number of countrieshave successfully adapted inflation targeting monetary policy framework in recent years. It is a framework based on hitting an inflation target, and it is considered that the target is going to be missed, then determining whether a change in policy stance is called for.In this paper, we briefly asses the viability of implementing an inflation targeting monetary policy framework in South Africa. The monetary policy in South Africa is conducted by the South African Revenue Bank. Those who have lived in South Africa in the past three decades witnessed dramatic uncontrollable price increase, convincing the Government to take serious measures pertaining to supply and demand of money. The paper furthermore, analyses the impact of inflation targeting on monetary policy in general, with a special focus on South Africa as developing country, highlighting the main strategic approaches implemented as well as the obstacles facing the developing countriesand South Africa in particular.

Keywords

Inflationtargeting, Finance, Accounting, South Africa, Central Bank

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