Fiscal policy impacts monetary policy
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According to Thabi leoka, There is a lot of talk about the role and the mandate of the SA Reserve Bank and emotions seem to rise when the economy is in a rut and solutions prove elusive. Critiques of the bank are plentiful but orchestrated reaction and co-ordinated attacks ring hollow when fiscal policy, or the lack thereof, is ignored.
Fiscal policy impacts monetary policy transmission channels both directly and indirectly. Both these channels influence aggregate demand conditions within the economy. Demand conditions in turn tend to influence wage and price-setting behaviour and that is how fiscal policy can affect inflation and inflationary expectations.
Unsustainable fiscal policy is likely to reduce the credibility of a government's commitment to direct monetary policy towards price stability. In turn, this reduction in credibility will raise long-term inflation expectations and increase the costs of pursuing an anti-inflationary monetary policy.
Fiscal policy impacts monetary policy transmission channels both directly and indirectly. Both these channels influence aggregate demand conditions within the economy. Demand conditions in turn tend to influence wage and price-setting behaviour and that is how fiscal policy can affect inflation and inflationary expectations.
Unsustainable fiscal policy is likely to reduce the credibility of a government's commitment to direct monetary policy towards price stability. In turn, this reduction in credibility will raise long-term inflation expectations and increase the costs of pursuing an anti-inflationary monetary policy.
