An economist at FNB, Koketso Mano, says the Reserve Bank’s decision to target the lower part of the 3 to 6% inflation range will have some implications for workers and businesses.
Mano argues that workers will face challenges negotiating salary increases beyond 3% while businesses will be forced to absorb rising costs instead of passing them on to the consumer.
The Reserve Bank ‘s Monetary Policy Committee has decided to cut interest rates by 25mbasis points taking the repo rate to 7% and the prime lending rate to 10.5%.
Mano says there are trade-offs to a lower inflation target.
“If the MPC is going to start preferably targeting inflation rate, it will have costs to the economy, even though those costs may be nominal. For us, for example, we may have to experience some wage reduction in real terms when you think about inflation. We may not see growth in our salaries higher than inflation. So, we’re also taking a bit of the knock to make sure that inflation remains low. Business may take a bit of a knock when you think about their ability to pass through costs. So, there will be that sacrifice that comes in,” explains Mano.
Economist Koketso Mano weighs in on MPC rate decision
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