Debating South Africa's approach to a lower inflation target

Abstract

This policy brief argues against lowering of the inflation target. A lower inflation target will worsen South Africa’s fiscal dynamics, leading to deeper and longer fiscal austerity, which will result in lower economic growth and employment. The arguments of the South African Reserve Bank (SARB) for a lower target are cogent but ignore the impact on government debt, and hence the negative impact on the macroeconomy at large.