The South African Reserve Bank (SARB) left its key repo rate unchanged at a 14-year high of 8.25% during its July 2023 meeting, matching expectations, and marking a pause in its tightening cycle after 10 consecutive rate hikes. However, the Governor noted the decision does not represent the end of the hiking cycle neither that interest rates have peaked, and the next steps will depend on inflation. Policymakers expect lower inflation this year at 6% (vs 6.2%), mainly due to softer food and core prices, although upside risks still hold. Headline inflation fell to 5.4% in June, back to the central bank target of 3%-6% for the first time in 14 months and is forecast to sustainably revert to the 4.5% by the third quarter of 2025. Meanwhile, policymakers raised growth forecast for this year to 0.4% from 0.3% but noticed that energy and logistical constraints continue limiting economic activity and increasing costs. Growth forecast for 2024 and 2025 were kept steady at 1% and 1.1%, respectively. Question: Discuss why the monetary policy would not be appropriate for the South African Economy.
Scenario:
The South African Reserve Bank (SARB) left its key repo rate unchanged at a 14-year high of 8.25% during its July 2023 meeting, matching expectations, and marking a pause in its tightening cycle after 10 consecutive rate hikes. However, the Governor noted the decision does not represent the end of the hiking cycle neither that interest rates have peaked, and the next steps will depend on inflation.
Policymakers expect lower inflation this year at 6% (vs 6.2%), mainly due to softer food and core prices, although upside risks still hold. Headline inflation fell to 5.4% in June, back to the central bank target of 3%-6% for the first time in 14 months and is
Question:
Discuss why the
Step by step
Solved in 3 steps
