In an unprecedented attack on the South African Reserve Bank and its inflation targeting approach, Dawie Roodt, the chief economist at the Efficient Group, says that perhaps it’s time for the SARB to show its independence, and to show it’s prepared to fulfil its mandate and to take the appropriate steps.
According to their calculations CPIX is likely to remain outside the target range until the second quarter of 2010 at best.
Roodt says that two very difficult tasks now lie ahead for the bank; firstly, credibility has to be regained and only when the bank’s commitment to fighting inflation is widely accepted, can the bank focus on the second (and its primary) task; fighting inflation.
Interest rates need to be increased to regain credibility and to fight inflation; and a 100 basis point increase may just do the trick before the SARB becomes “more accountable”. Over time this will provide substantial poverty relief.
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