"The Reserve Bank continues to deceive everyone by its statements that its monetary policy can keep the inflation rate in check, protect the exchange rate and stimulate economic growth, for which there is absolutely no evidence and which in fact is the single biggest delusion in the total economic science,” says Fanie Brink, an independent agricultural economist.
Brink referred to the article “Reserwebank: Ons het vinnig op pandemie gereageer” ("Reserve Bank: We responded quickly to pandemic"), which appeared on the website of Netwerk24 today in which the president of the Reserve Bank, Lesetja Kganyago, once again exposed his ignorance of economic principles by claiming that the Bank "acted swiftly and decisively to help counter the impact of the coronavirus pandemic on the country's economy” and that "we have stepped on the proverbial petrol to get the economy going by lowering interest rates."
Brink said “there is simply no truth in these statements because the impact of interest rate changes on economic growth is negligibly small and it is purely a superstition without any evidence to support it!"
Kganyago also said that "... there was no fiscal space to help the economy, so we had to use the monetary space we did have to support the economy" which is totally untrue because the government has pumped billions of Rands in the economy, together with a loan from the International Monetary Fund, mainly on the demand side but also on the supply side of the economy, to counter the serious consequences of the pandemic.
There can be nothing further from the truth than the further claims made by Kganyago by saying that "however, it must be borne in mind that the influence of lower interest rates on economic growth can usually only be seen 12 to 18 months later" and "As the economy recovers, lower interest rates are likely to start supporting growth.”
"These statements are also totally wrong and untrue, while there is also no evidence to support it!
In a recent statement, Kganyago stated that the Bank “… created space for itself through the reductions in its lending rate which lowered the inflation rate that created even more room for the Bank to lower its interest rate further.” The policy of the Bank has always been that the Bank has raised interest rates to lower the inflation rate, while the lower inflation rate was purely due to the very low demand in the economy due to the pandemic!
"The fact is that the Bank's interest rate has always only followed the inflation rate and did not determine it."
The Bank firmly believes that the changes in interest rates can have a significant impact on private consumption expenditure and therefore also on the inflation rate, while the facts prove that the interest costs that consumers pay amount to only 1,03% of their total expenditure on the demand side of the economy.
Interest costs do not even appear on the list of items on which consumers spend their money that Statistics SA compiles to calculate the changes in the consumer price index. Simple statistical analyses have also shown that the changes in interest rates can in no way explain the changes in inflation and the exchange rate, as well as economic growth!
These statements by Kganyago run counter to his previous delusion about basic economic principles, according to which he said "... the Bank alone cannot stimulate economic growth by lowering interest rates."
Brink says that through these statements, the Reserve Bank in fact completely denies and ignores the functioning of the market forces of supply and demand which is the most basic principle in economics.
The inflation rate is in fact determined by all the local and international economic and political factors that influence the demand and supply of goods and services, as well as the value of the currency, respectively. Economic growth is created from the supply and demand side of the economy, as evidenced by Statistics SA every quarter, which is driven by the profit motive that is also significantly influenced by the international market forces.
The central banks and most economists in the world will apparently never relinquish their total delusion about monetary policy, but the time has come for them to be challenged to provide evidence for their claims that, without any doubt, does not exist." says Brink.
