Central Bank Inflation Research Paper

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aggregate output/income. And another reason-being that, Central bank will attend to bring down inflation by rising interest rate, which will lead to a decline in consumer spending and investment spending. As a result, we will have a recession. On the other hand, Inflation can be damaging to the economic growth since it induces economic agents to divert away their funds from productive activity and productive investment in an attempt to avoid the inflation effects on income (small 1998:37). During inflationary period people get confused and become uncertain about what spend to their money on or where to invest it. Income redistribution Inflation-induced redistribution is costly to lenders and better-off for borrowers. There are four ways…show more content…
This explains why achievement and maintenance of price stability is one of the main objectives of the Reserve Bank. The South African Reserve Bank strives to keep inflation in South Africa within acceptable range in accordance with the inflation targeting framework. The basic way to keep inflation low or within the inflation targeting range, would require the price stability of basic foodstuffs as well as inputs goods such as petrol and electricity. Furthermore, most importantly, stability in exchange rates and wage rate should be maintained since they have a greater effect on the price level within the economy. Another way of keeping inflation under control requires the acceptance of real-income loss by the economic agents, as explained in section 4. Moreover, Van Eeghen (2014:16) emphasised that "barring productivity increases, inflation can be brought down if nominal profit rate, wage rates as well as total taxes paid increase with less than the inflation rate, which would then mean that real profit and wage rate as well as real tax income actually decline". However, no one is willing to accept the loss of the real wage, which is why inflation impulses tend to fuel the inflationary…show more content…
Thus, between the target range. The targeted variable is the CPIX, which refers to the CPI for metropolitan and other urban areas, but leaving out mortgage interest rate. The SARB uses the repo rate as the main instrument variable of monetary policy. Repo is utilised as a tool for controlling the money supply with the aim of maintaining financial stability and price stability (that is, inflation stability) and to promote economic growth. Moreover, Monetary Policy Committee (MPC) which comprises of the governor of the reserve bank, deputy governor and other senior bank officials, is in charge of setting the repo rate, taking into consideration a wide range of economic variables. MPC meets six times in a year to discuss about and make decision on repo rate. Once a decision has been made, the governor makes an announcement on the public media. In addition, more information about monetary policy and inflation is published and available to the public on the SARB
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