Should the SARB target employment instead of inflation?

Image by Etienne Martin on Unsplash

South Africa has one of the most persistent unemployment rates that are accompanied by poverty and inequality. Figure 1 below shows that for the past 10 years, the unemployment rate has been above 20% and more than half of the young adults aged between 15-24 years have been unemployed. These statistics have not been improving despite policies that have been implemented such as increased spending on education and training and the introduction of the Employment Service Act to reduce unemployment.[1]

Figure 1: South African Unemployment Rate

Source: World Bank (2021)

Given that the government policies have been ineffective, the question that remains now is, should the South African Reserve Bank (SARB) revise its mandate and target employment instead of inflation?

The current mandate of the SARB is to maintain a stable inflation rate that remains within the target of 3% and 6%.[2] The advantage of using the inflation targeting framework is that it allows for an independent, transparent, and credible central bank. The monetary policy authorities can conduct the monetary policy without the influence of the government and there is clear openness to hold the SARB accountable. Furthermore, inflation that is kept within the target range can withstand unseen shocks to interest rates, output, and exchange rates. This then increases policy credibility.[3] Given the persistent unemployment rate, one of the mandates that the SARB can use to reduce unemployment is the full employment mandate. The full employment mandate is considered a long-term monetary policy that is aimed at stimulated economic growth in times of stagnant or slow economic growth. The Reserve Bank will have to maintain low interests rates and engage in an aggressive expansionary money policy to reduce South African unemployment and strengthen the labour market.[4] The full employment mandate will also stimulate employment for low-income earners and low skilled individuals. The aggressive monetary policy will lead to low interest rates. The low-interest rates will reduce the cost of borrowing which could encourage consumer spending. Furthermore, low-interest rates encourage firms to invest in productive capital due to the low cost of borrowing. The increased consumer spending and investment will then lead to an increase in productivity and labour demand. Not only will labour demand increase, but wages will increase due to the increase in labour demand.

However, there are downsides to changing the current mandate of the SARB and pursuing an aggressive expansionary monetary policy. A change in the mandate of the SARB will lead to uncertainty and high inflationary expectations. In addition, this policy might not work if the SARB is not credible because agents will not be certain that the SARB will hold on to their commitment. Furthermore, before the SARB can play an aggressive role in targetting employment, the focus needs to also be on the government that has been failing citizens for years. The economic problems that South Africa is currently facing cannot be resolved by changing the mandate of the SARB. They can only be solved by the implementation of the much-needed structural reforms.

The persistent unemployment rate is due to South African socioeconomic factors and lack of effectiveness of policy interventions. The education and training provided to young people is not effective in equipping them with the necessary skills to be competitive in the labour market. There is also a skills mismatch whereby only a few individuals have the skills demanded by firms. These are some of the problems that the government can address through the educational system before the mandate of the SARB can be changed to target employment.

Should SARB target employment instead of inflation? Let us know in the comment section below or write to us at

[1] South African Government (2014). Employment Services Act 4 of 2014. [2] South African Reserve Bank, 2021. Welcome to the South African Reserve Bank - South African Reserve Bank. URL (accessed 3.8.21). [3] Kabundi, A., Mlachila, M., 2019. The role of monetary policy credibility in explaining the decline in exchange rate pass-through in South Africa. Economic Modelling 79, 173–185. [4] Baker, D., Rawlins, S., and Stein, D. (2017). The full employment mandate of the Federal Reserve: its origins and importance. CEPR.

55 views0 comments