THE MONETARY‐FISCAL POLICY MIX IN SOUTH AFRICA

Abstract

STIMULATORY MONETARY AND FISCAL POLICIES played an important role during the recent world economic slowdown as reflected in low interest rates and widening public deficits in many countries. Interest rates reached historical lows in many countries and some governments in the euro area even breached the 3 per cent deficit limit putting pressure on the credibility of the Stability and Growth Pact. These experiences raise the question as to whether monetary and/or fiscal policy should be concerned about stabilising the business cycle. This paper reviews the South African monetary and fiscal policy stance over the business cycle since fiscal 1972/73 and considers the question of whether these policies were coordinated or uncoordinated over the years. The paper is organised as follows: The next section defines macroeconomic stability and the role of monetary and fiscal policy in this regard. This section also highlights the interaction between monetary and fiscal policy referring to the so-called policy mix. Section 3 gives a brief overview of monetary and fiscal policy objectives in South Africa, while the monetary stance, fiscal stance and cyclical conditions in the South African economy are evaluated in section 4. The South African monetary-fiscal policy mix since the 1970s is analysed in section 5, while section 6 concludes.