The observed absence of second round effects brian kantor th 19 august 2011 investec wealth and investment hakon kavli university of cape town 1. Formal inflation targeting has been adopted as the monetary policy framework in south africa since february 2000. But sarb cant publicly say that as the rand is not their mandate, but. Monetary policy appropriateness in south africa the design and implementation of monetary policy in south africa has been based on the idea of a tradeoff between inflation and output growth. Data, policy advice and research on south africa including economy, education, employment, environment, health, tax, trade, gdp, unemployment rate, inflation and pisa. South africas central bank defends inflation targeting reuters.
In south africa the 1970s were a decade of high inflation compared with the 1960s. South africa inflation rate at 17month high, exceeds target. Appropriateness of inflation targeting in south africa. Oconnell1 january 4, 2010 in an inflation targeting it framework, the central bank commits to a publicly announced numerical range for inflation, subordinates other intermediate targets, and institutionalizes its commitment through a set of mechanisms that emphasize. South africa inflation rate falls into target band in. It continues to be our belief that sarb raised interest rates in january 2016 just after president zuma unleashed nenegate on south africa and in march 2016 to protect the rand more than it did to curb inflation.
To manually enter latitudelongitude, select enter latlong from the. Inflation targeting monetary policy, inflation volatility and. In geography, latitude is a geographic coordinate that specifies the northsouth position of a. By december 2001, the governor of the south african reserve bank, after reading the latest statistics, was concerned with the disappointing economic data. South africa had formally introduced a policy of inflation targeting it in february 2000. This volume focuses on the experiences of brazil, chile, czech republic, indonesia, south. This research was conducted to evaluate the adoption of inflation targeting in south africa as a strategy to maintain price stability. Between 1960 and 1998, these included exchangerate targeting, discretionary monetary policy, monetary.
Inflation targeting monetary policy, inflation volatility and economic growth in south africa wolassa l kumo1 1 wolassa l. Advantages and disadvantages of inflation targeting 12 2. The inflation targeting framework in south africa involves communication between the government treasury and the sarb in setting a target or band for the rate of inflation over a period of time. South africas inflation fell below the upper end of the central banks target band in august for the first time this year, leaving room for policymakers to continue to pause their tightening. In modern day theory, many economists see the theory as too simplistic, with other influences such as the velocity of money supply measures, seen. Hitting the ceiling of the south african reserve bank sarb inflation target range, the cpi comes in at 6% this month, with a 1,3% monthly increase. There has been an ongoing debate on whether inflation targeting is appropriate for the. He spent his academic career at the london school of economics, where he showed an inverse relationship between inflation and unemployment, as shown by the graph on the right. Considerable emphasis was placed on the attainment of price stability, but the time period over which this would be achieved was not specified. Prior to adopting the inflationtargeting framework, the bank had adopted a number of frameworks.
In 1974 inflation moved to higher than 10% and averaged 10. Monetary policies and inflation targeting in emerging. On wednesday last week, statistics south africa statssa released the june consumer price index numbers. During the first period, from 1980 to 1989, monetary policy was not successful in containing inflation. Before this announcement informal inflation targeting was already applied by the south african reserve bank. However, south africa has missed its set inflation targets five times over the past ten years which brings about questions regarding the effectiveness of the inflation targeting as a monetary policy framework in south africa kahn, 2010. Targeting inflation, a monetary policy strategy which has been successfully used by a number of industrialized countries, has thus become an increasingly attractive alternative that has been adopted by a growing number of emerging market countries, including chile, brazil, the czech republic, poland and south africa.
Headline inflation surprised the market by only increasing 5. Opening address by ms gill marcus, governor of the south african reserve bank, at the biennial conference of the bank fourteen years of inflation targeting in south africa and the challenge of a changing mandate, pretoria, 30 october 2014. Repo rate raised by 400 basis points in four steps. South africa thus opted for a target range rather than a point target and in february 2000 the minister of finance announced publicly that formal inflation targeting was to be adopted in the country as the monetary policy. Formal inflation targeting is still uncommon in african countries, with only south africa and ghana having officially adopted the framework at the current time. South africas inflation has been quite stable for the past years, levelling off between 4. Kumo is country economist, at the african development bank, south africa regional office, pretoria. Inflation targeting monetary policy, inflation volatility. Defenders of the inflation targeting regime point out that south africas unemployment is structural and largely impervious to monetary policy. Vermeulen september 11, 2015 abstract it is often publicly contended that overly strict application of ination targeting sties employment growth in south africa, with the phillips curve often cited as seemingly authoritative reference. It does not to attempt to find a full explanation of inflation in south africa. Students look at lines of latitude and longitude on a world map, predict temperature. Is there a case for formal inflation targeting in subsaharan.
A bayesianestimated model of inflation targeting in south africa. Speech by mr t t mboweni, governor of the south african reserve bank, at the bissarb reserve. South africas annual inflation rate was 4,5% in january, higher than that recorded in december 4,0% and november 3,6%. Second, nigeria is absent from the list of countries that have adopted inflation targeting as a monetary policy framework, while south africa and ghana are the only countries in africa that have adopted inflation targeting. Features of inflation targeting as a type of monetary strategy 41 state a desired target range for inflation usually around 1. Introduction to latitude and longitude national geographic society. It should be clear that the purpose of our paper is much less ambitious. There is evidence of growing concern regarding south africa s. Inflation inequality in south africa 3 cpi is used in determining periodic adjustments to minimum wages in sectoral determinations that covered an estimated 29.
This is under debate within the fed, since inflation targeting is usually very successful in other countries because of its transparency and predictability to the. The initial phase of the explicit inflation targeting regime in south africa lasted. A number of researchers have made attempts to model inflation in south africa, see for example aron and muellbauer 2004, 2009. Inflation targeting in emerging market countries frederic s. Jul 30, 20 on wednesday last week, statistics south africa statssa released the june consumer price index numbers. Inflation targeting and inflation performance in south africa. Chapter one 3 jeff mashele mba 1011 in 1984, the sociopolitical events in south africa hampered the countrys participation in exchange rate markets. The research was based on the period prior to inflation targeting and the period of inflation targeting. This places inflation right on the 4,5% midpoint of the south african reserve banks monetary policy target range. Latitude, longitude, and temperature national geographic society. Inflation targeting is a monetary policy framework in which the central bank announces an explicit inflation target and implements policy to achieve this target directly. Africa statistics flash united nations economic commission.
Inflationtargeting the right policy for sa article staff reporter 10 mar 2010 inflationtargeting is the right policy for south africa, the international monetary fund imf said on wednesday. The comparison was done to determine if the reserve bank was on the right track in adopting inflation. Our findings support the two features of the opportunistic approach. Is there a case for formal inflation targeting in sub. A bayesianestimated model of inflation targeting in south africa prepared by thomas harjes and luca antonio ricci1 authorized for distribution by jorg decressin and atish ghosh february 2008 abstract this working paper should not be reported as representing the views of the imf. An introduction to coordinate systems in southafrica. The appropriateness of inflation targeting in south africa is examined. An evaluation of inflation targeting in south africa. Since the introduction of the inflation targeting monetary policy, the country largely succeeded in containing. Merits of inflation targeting in south africa 16 2. The main contributors to the 4,5% rate were food and nonalcoholic beverages. Sep 21, 2016 south africas inflation fell below the upper end of the central banks target band in august for the first time this year, leaving room for policymakers to continue to pause their tightening. Inflation at 6%, hitting the ceiling of the sarb inflation.
In south africa, the initial target range of 3 to 6 percent was set by the minister of finance in consultation with the sarb. This was announced by the minister of finance in his medium term budget policy statement on 21 october 2008. Lines of longitude are great circles which pass through. Prior to that since about 1990, the south african reserve bank has pursued implicit inflation targeting with no officially announced inflation target.
Many of the countries studied proved that inflation targeting had made a positive difference to their economies. South africa is among a number of countries that have adopted inflation targeting as their monetary policy framework since 1990. Country experiences with the introduction and implementation of inflation targeting prepared by charles freedman and inci otkerrobe1 authorized for distribution by inci otkerrobe july 2009 abstract this working paper should not be reported as representing the views of the imf. Our track record and experience gives us an unrivalled understanding of africas unique mix of countries, cultures and currencies. Inflation targeting and economic growth nexus in nigeria. Inflation and market uncertainty in south africa request pdf. Inflation and inflation expectations in south africa. Prior to adopting the inflation targeting framework, the bank had adopted a number of frameworks. Target modified from 35 per cent in 2004 to 36 per cent. Inflation, money demand, and purchasing power parity in south.
However, in the empirical literature there is no consensus on the existence of a phillips curve in present times. This study indicates that inflation targeting is an appropriate framework for monetary policy, particularly when there is a dire need for reducing high and volatile inflation. One of the features of an inflationtargeting framework is the greater degree of transparency it brings to monetary policy. Inflation at 6%, hitting the ceiling of the sarb inflation target range.
Lines of constant latitude and longitude together constitute a graticule on the. Jul 06, 2017 inflation targeting has its flaws but is the least bad option for south africa as monetary policy should be used to create price stability, central bank deputy governor kuben naidoo said on. At the time of the announcement the cpix rate was near 7%. The phillips curve was developed by new zealand economist a. Negative in eastern hemisphere, negative in southern hemisphere. The interactive map of south africa above shows the inflation rate per province in south africa for each month as published by statistics south africa, based on the latest cpi data, inflation is highest in the province of the western cape and lowest in mpumalanga, while the inflation rate of gauteng is very similar to the overall inflation rate. Department of defense world geodetic system 1984 pdf. Inflation targeting framework south african reserve bank. In south africa, formal inflation targeting was adopted by south african reserve bank sarb in the february of 2000, with an objective of maintaining cpix1 inflation between the targetband of 3 percent to 6 percent by 2002, using discretionary changes in repurchase repo rate as its main policy instrument. It attracts investment to nonproductive assets and discourages saving. Inflation targeting in south africa darden business publishing. Once an ellipsoid has been defined, lines of latitude and longitude can be gener ated for that ellipsoid.
Inflation targeting in south africa had been debated for many years prior to its formal announcement in the february 23, 2000, budget speech. A bayesianestimated model of inflation targeting in south. South africas central bank defends inflation targeting. Jul 16, 2017 defenders of the inflation targeting regime point out that south africas unemployment is structural and largely impervious to monetary policy. Parity in south africa gunnar jonsson this empirical study for south africa indicates that there exists a stable money demand type of relationship among domestic prices, broad money, real income, and interest rates, as well as a longrun relationship among domestic prices, foreign prices, and the nominal exchange rate. We test the concept of the opportunistic approach to monetary policy in south africa post 2000 inflation targeting regime. Annabel bishop, chief economist at investec, estimates this structural element at 22 percentage points of the 27. The monthly increase is the largest since june 2008 1,4%.
A twoyear phase in period followed, with the 2002 target set at 3% to 6% for the annual average cpix inflation rate. In south africa, formal inflation targeting was adopted by south african reserve bank sarb in the february of 2000, with an objective of maintaining cpix1 inflation between the target band of 3 percent to 6 percent by 2002, using discretionary changes in repurchase repo rate as its main policy instrument. A twoyear phasein period followed, with the 2002 target set at 3% to 6% for the annual average cpix inflation rate. Inflation targeting in south africa continued inflation targeting in south africa continued cpix inflation in 2002 averaged 9,3% peaked at 11,3%. South africa formally introduced inflation targeting in february 2000, after announcing the intention to adopt the framework in august 1999. South africa has adopted flexible inflation targeting, wherein considerations for other macroeconomic variables are prioritized. Inflation targeting, as a formal monetary policy regime, was first introduced in new zealand in 1990 and has since been adopted by numerous countries around the world. In 1986, sarb announced the adoption of specific growth. Africa means business with africa poised to become one of the worlds fastest growing regions by 2050, we know that africa means business. This policy was adopted in the year 2000 in south africa, and there have been a growing number of concerns about the effects of inflation targeting on economic growth in south africa. Economic activity had slowed drastically, to the point that the country appeared to be heading for a recession.
South africa, as well as brazil, mexico, and the philippines, all adopted inflation targeting around the turn of the century, and other countries, such as colombia began implementing monetary policy using the interest rate instrument in a rulelike manner similar to many other inflation targeting countries. Since 1980 there have been three distinct monetary policy regimes in south africa. South african reserve banks inflation forecasts over time. The macroeconomic data used in the analysis for the preinflation targeting monetary policy regime, 1960q1 to 1998q4, for the inflation targeting monetary policy regime, i. Inflation targeting has its flaws but is the least bad option for south africa as monetary policy should be used to create price stability, central bank deputy governor kuben naidoo said on. Inflation, money demand, and purchasing power parity in.
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