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. South africa inflation rate 19682020 data 20212022. Prior to adopting the inflationtargeting framework, the bank had adopted a number of frameworks. It attracts investment to nonproductive assets and discourages saving. On wednesday last week, statistics south africa statssa released the june consumer price index numbers. In 1986, sarb announced the adoption of specific growth. South africas central bank defends inflation targeting. Appropriateness of inflation targeting in south africa. Formal inflation targeting has been adopted as the monetary policy framework in south africa since february 2000. Inflation targeting framework south african reserve bank. Economic activity had slowed drastically, to the point that the country appeared to be heading for a recession. Inflation targeting in south africa had been debated for many years prior to its formal announcement in the february 23, 2000, budget speech. South africa has adopted flexible inflation targeting, wherein considerations for other macroeconomic variables are prioritized. Inflation, money demand, and purchasing power parity in.
By december 2001, the governor of the south african reserve bank, after reading the latest statistics, was concerned with the disappointing economic data. The survey is an omnibus householdbased instrument aimed at determining the progress of development in the country. Is there a case for formal inflation targeting in sub. Target modified from 35 per cent in 2004 to 36 per cent. 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. South africa had formally introduced a policy of inflation targeting it in february 2000. Inflation targeting monetary policy, inflation volatility. South african reserve banks inflation forecasts over time. We test the concept of the opportunistic approach to monetary policy in south africa post 2000 inflation targeting regime. Inflation targeting in south africa continued inflation targeting in south africa continued cpix inflation in 2002 averaged 9,3% peaked at 11,3%.
The ghs is an annual household survey conducted by stats sa since 2002. 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. In february 2000, south africa adopted a formal inflationtargeting framework for monetary policy. In south africa, formal inflation targeting was adopted by south african. Prior to adopting the inflation targeting framework, the bank had adopted a number of frameworks. Inflation and inflation expectations in south africa. 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. The observed absence of second round effects brian kantor th 19 august 2011 investec wealth and investment hakon kavli university of cape town 1. Data, policy advice and research on south africa including economy, education, employment, environment, health, tax, trade, gdp, unemployment rate, inflation and pisa. Repo rate raised by 400 basis points in four steps. Does this mean that some inflation targeters were targeting inflation up to two years before the announcement of official targets. Inflation targeting and inflation performance in south africa. Getting the date right is important because many studies are interested in the effect.
Although the bank tried to make the market price stable, but failed to do so within the given time limit because of high inflation. South africas inflation has been quite stable for the past years, levelling off between 4. Between 1960 and 1998, these included exchangerate targeting, discretionary monetary policy, monetary. South africa is among a number of countries that have adopted inflation targeting as their monetary policy framework since 1990. 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.
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. Central banks formal adoption of the inflation targeting framework in 2007. Advantages and disadvantages of inflation targeting 12 2. A twoyear phasein 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. Inflation targeting and economic growth nexus in nigeria.
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. 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. Inflation targeting has become a dominant framework for monetary policy. There has been an ongoing debate on whether inflation targeting is appropriate for the. Inflation targeting in south africa had been adopted by the south african reserve bank at the commencement of this millennium to implement a better monetary policy. 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. South africa inflation rate at 17month high, exceeds target. Merits of inflation targeting in south africa 16 2.
However, in the empirical literature there is no consensus on the existence of a phillips curve in present times. Chapter one 3 jeff mashele mba 1011 in 1984, the sociopolitical events in south africa hampered the countrys participation in exchange rate markets. But sarb cant publicly say that as the rand is not their mandate, but. 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. Expansion of inflation targeting as a monetary policy framework. It was the lowest inflation rate since last december, as prices slowed mostly for transport 3. Formal inflation targeting is still uncommon in african countries, with only south africa and ghana having officially adopted the framework at the current time. Inflation targeting in south africainflation targeting in south africa official target range of 3 to 6 percent of cpix formalised since february 2000 it has remained within the target range since september 2003 sarb has been remarkably successful in bringing inflation under control during the past four years. 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 is evidence of growing concern regarding south africa s. Inflation targeting is increasingly seen as the best practice for central bank policy in many economies around the world, including a growing number of developing countries.
It gives me great pleasure to welcome you all to the biennial conference of the south african. It discusses the implications and relative merits of such a framework for south africa, and concludes that it would be feasible and desirable for south africa to adopt explicit inflation targeting. The appropriateness of inflation targeting in south africa is examined. Inflation at 6%, hitting the ceiling of the sarb inflation. The effects of inflation targeting on economic growth in south africa. 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. Since 1980 there have been three distinct monetary policy regimes in south africa. Kumo is country economist, at the african development bank, south africa regional office, pretoria. Prior to that since about 1990, the south african reserve bank has pursued implicit inflation targeting with no officially announced inflation target. Inflation targeting monetary policy, inflation volatility and economic growth in south africa wolassa l kumo1 1 wolassa l. The initial phase of the explicit inflation targeting regime in south africa lasted. The annual inflation rate in south africa fell to 4.
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. The monthly increase is the largest since june 2008 1,4%. The solution to the problem is a fixed point f,v of the mapping and a. Considerable emphasis was placed on the attainment of price stability, but the time period over which this would be achieved was not specified.
South africa formally introduced inflation targeting in february 2000, after announcing the intention to adopt the framework in august 1999. Inflation at 6%, hitting the ceiling of the sarb inflation target range. 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. Annabel bishop, chief economist at investec, estimates this structural element at 22 percentage points of the 27. The south african reserve bank sarb moved to an official inflation. South africa formally adopted an inflation targeting monetary policy regime in february 2000. To date, inflation targeting has not made inroads into african economies, with only ghana and south africa having formally adopted this policy regime. 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.
During the first period, from 1980 to 1989, monetary policy was not successful in containing inflation. Inflation inequality in south africa 3 cpi is used in determining periodic adjustments to minimum wages in sectoral determinations that covered an estimated 29. Before this announcement informal inflation targeting was already applied by the south african reserve bank. 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 and market uncertainty in south africa request pdf. Many of the countries studied proved that inflation targeting had made a positive difference to their economies. The last time the inflation rate was above the midpoint was in november 2018 when the rate was 5,2%. Israel, norway and south africa, the majority of banks do not reveal any voting. Gdp and gdp growth rate in south africa, 20122022f 42. South africas annual inflation rate nudged up to 4,6% in february from januarys 4,5%, inching past the 4,5% midpoint of the south african reserve banks monetary policy target range. Since the introduction of the inflation targeting monetary policy, the country largely succeeded in containing.
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