n AfricaGrowth Agenda - The SARB's inflation targeting paraphernalia : a look at the use of the escape clause

Volume 2009, Issue 10
  • ISSN : 1811-5187


South Africa (SA) like many other countries around the globe adopted the Inflation Targeting (IT) framework. According to Van Der Merwe (2004), the justification for this move centres on about four pillars. First, the informal IT strategy fomented uncertainties in the system about what monetary policy stance the South African Reserve Bank (SARB) would take. Second, if the target is in line with other economic objectives, IT enhances coordination between monetary policy and other policies. Third, due to increased transparency, IT bolsters monetary policy discipline and accountability. Last, credible inflation targets form the basis for future price setting; as such IT affects inflation expectations and in turn, gives the SARB a handle on inflation.

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