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Has Inflation Targeting By The South African Reserve Bank Reduced The Rate Of Economic Growth In Namibia? – Evidence From The Sacrifice Ratio

  • June 7, 2016
  • Posted by: admin
  • Category: Financial Sector Management
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By Postrick Lifa Mushendami
June 2009
This main objective of the study was to establish whether the disinflation monetary policy of the South African Reserve Bank (SARB) due to inflation targeting (IT) impacted negatively on output in Namibia. The study used the sacrifice ratio to examine the impact of IT on output in Namibia. The analysis was also extended to cover Botswana and Swaziland. The study found that inflation targeting in South Africa brought price stability to Namibia without increasing the output loss. Similar results were observed for Swaziland which is also a member of the Common Monetary Area (CMA). For Botswana which is not a member of the CMA, the output loss increased during the period of inflation targeting in South Africa.

The study therefore recommend that MEFMI member counties which have serious reservations with monetary targeting frameworks as anchors for monetary policy must begin to consider inflation targeting. Moreover, MEFMI member countries which are experiencing high inflation could consider currency board arrangements which will involve pegging of their national currencies to a low inflation country such as South Africa as an enforceable price control mechanism. In either case, the fear of a loss in output which could be destabilizing can be avoided while prices remain stable and long run growth is guaranteed. The approach could serve as part of the actions aimed at a broader approach to the issue of regional integration in the SADC region