Inflation targeting and the rapid expansion of the South African economy

Since the country implemented an inflation‑targeting strategy 20 years ago, both actual and expected inflation in South Africa have decreased. However, economic growth has remained at its lowest compared to a decade ago. It is unclear if whether inflation targeting is solely to blame for this decline or whether it has been successful in stabilising other macroeconomic variables and growth. The main objective of this study is to investigate whether the inflation targeting policy has contributed to economic growth in South Africa. The study looked at the state of the South African economy after an inflation‑targeting policy was implemented. To accomplish the study’s goal, data from 2000 to 2019 was used. The data was analysed using a vector error correction (VECM) model with impulse restrictions. According to the study, there is an inversely proportional relationship between inflation targeting and economic growth. Thus, targeting inflation slows economic growth. It was found that a shock in interest rates reduces GDP, yet the exchange rate and the CPI have a smaller impact on the GDP. To put it another way, the SARB’s use of inflation targeting to implement monetary policy harms South Africa’s GDP growth rate.