We Are Far From Winning the Inflation Battle- SARB Governor

“The battle against inflation is not yet won. The longer it goes on, the longer we will have elevated interest rates, and the more we will prolong the stress test, it is good that we have been resilient so far, but that does not guarantee smooth sailing ahead, and resilience does not mean there is no suffering. There are plenty of signs of pressure on households, businesses, and governments,” these were the words of South African Reserve Bank Governor, Lesetja Kganyago during the SADC Committee of Central Bank Governors Symposium held at the Royal Villas last week Friday.

The Symposium which was themed ‘Monetary Policy at Crossroads: Pressures from Inflation, Climate Change, Financial Stability and Financial Sector Resilience featured Governors and Central Bank delegates from the Southern African Development Community (SADC). Kganyako presented the keynote address on the day and conceded that the inflation rate is still high, particularly in emerging markets.

He noted that Central Banks are not oblivious to the current challenges posed by inflation, but cautioned against only relying on tight monetary policy to fight inflation.

“For most countries, it would probably be better to have tight fiscal policies, as this would make smaller demands on scarce savings, reduce crowding out, and also reduce most country’s high-risk profiles. Global debt is significantly higher than it was before the onset of the COVID-19 pandemic. Debt is not stabilizing, and this is putting enormous pressure on monetary policies.”

The SARB Governor advised countries globally to make growth a priority, as that would go a long way in mitigating the effects of inflation. He said bad macroeconomic policy can hurt growth, but good macroeconomic policy alone is not enough.

He noted that economic growth would likely result in moderate inflation and interest rates, as well as ample investor interest. Kganyago made an example of India which has lifted 400 million people out of poverty in the last decade through persistent economic growth.

He concluded his presentation by stating that global interest rates are likely not going to fall very soon, as most people anticipate.

“The good news is that most emerging markets are proving resilient despite the challenging circumstances. There is plenty of room to build on our successes, to get better macro policies, and to develop better growth policies. However, good Central Banking alone is not sufficient for growth and development, so let us take pride in our policy successes, but let us not lose sight of the long road ahead. The battle against inflation is not yet over.”

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