SARB research conference unpacks living with inflation targeting

The South African Reserve Bank’s Biennial Research Conference in Cape Town continues talks for a second day now, as regional central bank governors and financial policy makers meet to discuss a new era of inflation-targeting regime. Earlier, a panel of private sector experts sat down for a discussion to unpack industry’s role in this. The conference has focused on key topics such as communication strategies, the credibility of the monetary policy, and the balance between inflation targeting and economic growth. The conference started off with discussions on how central banks communicate when they are outside the target range. One of the key points raised was the importance of justifying the decision to keep rates on hold, especially when forecasting to meet the target. The addition of detailed scenarios in the last monetary policy statement was highlighted as a positive step in enhancing transparency and communication with investors. The transparency and credibility of South Africa’s inflation-targeting regime was commended by the panel of experts. The South African Reserve Bank (SARB) has been recognized for providing higher levels of access to its policy decisions, compared to other emerging markets. The smooth transition to the new monetary policy implementation framework was also praised, indicating the market’s confidence in the bank. There was a discussion on the perception of the SARB among different types of investors. Fixed income investors generally view the SARB positively, understanding the rationale behind its decisions. However, equity investors often advocate for lower rates, which reflects a common desire for reduced borrowing costs to boost stock prices. This dynamic highlights the challenge of balancing the interests of different investor groups. The debate around the SARB’s hawkish stance was also addressed during the conference. The panel emphasized the importance of considering both upside and downside risks in monetary policy decisions. While the SARB has been perceived as conservative in its approach, especially in managing inflation expectations, there were suggestions to provide more support for economic growth, considering the current uncertainties. The discussion also touched upon the international perspective on South Africa’s monetary policy. While local investors may have varying opinions on the impact of SARB’s policy stance on economic growth, international investors generally view the central bank’s credibility positively. The importance of structural reforms and economic factors beyond monetary policy in driving growth was highlighted as a key consideration. Overall, the conference provided valuable insights into the complex dynamics of navigating the inflation-targeting regime. The discussions around communication strategies, policy credibility, and the balancing act between inflation control and economic growth shed light on the challenges and opportunities facing the South African Reserve Bank in its monetary policy decisions.