Essay Topic: “Should the SARB expand its mandate to target employment creation?”

Context:
“The Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa” (South African Reserve Bank). To this effect, it formally implemented the inflation-targeting framework in February 2000. The inflation target for the bank has been in the 3% – 6% range. Since then, the SARB has successfully kept inflation within the target range since its inception compared to before this policy regime. As of April 2024, the Consumer Price Index (CPI) is 5.2% year-on-year (Statistics South Africa).

However, unemployment remains a key economic challenge facing South Africa. The country has one of the highest unemployment rates in the world, at 32.1% in the fourth quarter of 2023 (Statistics South Africa). Many of the unemployed individuals are youth, aged between 15 and 24, with an unemployment rate of 59.4%.

Question: Should the SARB be part of the solution by expanding its mandate to target employment creation?
Your task:
In answering the above question, you are required to:

(a) Provide a literature review on the effects of inflation-targeting and employment-targeting. The literature reviewed should be:
i. Theoretical ii. Empirical
(b) Discuss in detail inflation-targeting and employment-targeting. Specifically, discuss the advantages and the disadvantages of each framework.
(c) Collect annual data on South Africa’s inflation, interest rates, and employment from 2010 to 2023.

Present the data in a table or graph and discuss the evolution over time.

(d) Discuss whether the SARB should be part of the solution by expanding its mandate to target employment creation and explain how the policy will benefit South Africa. Be sure to present your answer in the context of South Africa and its challenges.

Answers to Above Questions on SARB

Answer 1: Inflation targeting as the name suggests is an important monetary policy that is aimed at achieving specific targets with respect to inflation level. It is the central bank that sets an explicit target for inflation which is set to accomplish overtime. The main purpose of this type of policy is to achieve price stability which can ultimately contribute towards economic growth.