The controversy around monetary policy and the inflation target - are we sacrificing sustainable growth and full employment?

This concept note from the Institute for Economic Justice (IEJ) outlines a discussion for the 'Economic Justice Matters' series regarding South Africa's monetary policy. It critiques the South African Reserve Bank's (SARB) restrictive interest-rate cycle and its shift toward a lower inflation target, arguing that such policies may sacrifice sustainable growth and employment to prioritize price stability, especially when inflation is driven by global supply shocks rather than domestic demand.

• The South African Reserve Bank (SARB) has implemented a restrictive interest-rate cycle since 2022 to control inflation, raising the repo rate from 4.25% in March 2022 to 8.25% by May 2023, an increase of approximately 475 basis points.
• In November 2025, South Africa's inflation target was changed from a 3-6% range to a point target of 3% with a 1 percentage point tolerance band, meaning the effective target band is 2-4%.
• Critics and evidence suggest that recent inflation surges were primarily caused by external factors—such as global supply shocks, fuel and food prices, and logistics costs—rather than domestic demand, making aggressive interest-rate hikes potentially ineffective and harmful to investment and job creation.
• South Africa faces severe economic challenges, with growth hovering around 1% and unemployment rates reported at 31.4% (strict) and approximately 42.9% (expanded) as of Q4 2025/Early 2026.
• The IEJ proposes a 'developmental' monetary policy for the SARB, which includes institutionalizing a 'look-through' rule for temporary supply shocks, making the real-economy side of its mandate operational through explicit assessments of repo decisions on employment and investment, and creating targeted funding tools similar to the Bank of England's Term Funding Scheme or the ECB's Targeted longer-term refinancing operations.

APA

Institute for Economic Justice (2026). The controversy around monetary policy and the inflation target - are we sacrificing sustainable growth and full employment? https://iej.org.za/wp-content/uploads/2026/05/IEJ-x-SMWX-Concept-note-Episode-11.pdf

Chicago

Institute for Economic Justice. The controversy around monetary policy and the inflation target - are we sacrificing sustainable growth and full employment? 2026. https://iej.org.za/wp-content/uploads/2026/05/IEJ-x-SMWX-Concept-note-Episode-11.pdf.

Wikipedia

{{cite report |author=Institute for Economic Justice |title=The controversy around monetary policy and the inflation target - are we sacrificing sustainable growth and full employment? |date=24 May 2026 |url=https://iej.org.za/wp-content/uploads/2026/05/IEJ-x-SMWX-Concept-note-Episode-11.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{instituteforeconomicjustice2026controversy, author = {{Institute for Economic Justice}}, title = {{The controversy around monetary policy and the inflation target - are we sacrificing sustainable growth and full employment?}}, institution = {Institute for Economic Justice}, year = {2026}, month = may, url = {https://iej.org.za/wp-content/uploads/2026/05/IEJ-x-SMWX-Concept-note-Episode-11.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }