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SA Reserve Bank Governor Weighs In on the Challenges and Blind Spots Central Banks Face

Though central banks are under fire for potentially overtightening, SA Reserve Bank Governor Lesetja Kganyago told an international audience that humility surrounding assessing inflation forces and comfort with the prospect of a mild recession were advisable in an environment where inflation dynamics defy easy analysis. Kganyago weighed in on the challenges and blind spots central banks face at this point at the Peterson Institute for International Economics Macro Week 2023 conference this week, recommending that central banks remain humble in their assessment of changing inflation dynamics and how higher interest rates are passing through to the real economy. Kganyago’s recommendation is that central banks and market participants, it seems, need to accept there will be policy uncertainty — something that, he believes, comes easier to emerging markets — and become more comfortable with the prospect of minor recession “instead of prolonged periods of weak growth that bedevil larger emerging economies like mine”.