Related Articles
Top Stories
May 27 2012 11:21
There's a price war raging between South Africa's cellphone networks after Cell C lowered the rates of its prepaid calls by more than 34%.
May 27 2012 11:49
The country's 200 000-odd Tupperware agents are angry about the counterfeit products being sold as the real McCoy.
May 27 2012 13:09
The oversupply of golf estates has claimed another victim.
Johannesburg - Interest rates need to be increased to regain credibility and to fight inflation, and a 100 basis point increase may just do the trick before the SA Reserve Bank (SARB) becomes "more accountable", according to Efficient chief economist Dawie Roodt.
Over time this will provide substantial poverty relief, he says.
"Perhaps it's time for the SARB to show its independence and show it's prepared to fulfil its mandate and to take the appropriate steps," says Roodt.
Roodt says two very difficult tasks now lay ahead for the Bank.
Firstly, credibility has to be regained and only when the bank's commitment to fighting inflation is widely accepted can the bank focus on the second (and its primary) task - fighting inflation.
Roodt points out that by keeping interest rates too low the SARB has "squandered all its dry ammunition by sailing too close to the wind" in the past and "perpetuating the farce" that money is wealth, or that money equals goods.
Wealth
"Money can literally be created out of nothing while real wealth (food, clothes, houses, services etc) can only be created out of production. By adding excess money to a dysfunctional system (with too low interest rates), wealth
creation lags behind and price rises are the inevitable," he adds.
"Put differently, a sustained increase in the money supply results in a sustained increase in the price level (that is in inflation). Empirical studies all point out that the long-run correlation between money and growth is zero.
Milton Friedman has taught us this already in 1968: there is no long-run Phillips curve according to which we can trade-off inflation for growth! Economists have known this for decades. It is high time policymakers start acting accordingly," says Roodt.
Inflation targeting
"And like clockwork the 'deceitful' appear with calls for a more accountable SARB and to reopen the debate on inflation targeting and for replacing the inflation targets by 'real' targets, i.e. employment targets, poverty reduction targets and the like.
"These are all objectives that are unachievable with too loose monetary policy, and are in fact only double-speak for allowing politicians control over monetary policy with one aim only and that is to keep interest rates (too) low.
"The reason why we have an independent central bank is precisely to prevent politicians to make populist short-term decisions to the detriment of long-term growth," concludes Roodt.
The central bank makes its decision on Thursday just after 15:00.
- I-Net Bridge