If the real economy, for example, expands by 3 per cent per annum, and the current rate of inflation is 7 per cent, a continuous increase in the nominal money supply at rates of more than 10 per cent per annum will eventually exert upward pressure on inflation. Increases in the money supply of less than 10 per cent will drag inflation downwards.
Over the past few years, the Reserve Bank had indicated that an appropriate rate of increase for the South African money supply would be between 6 and 10 per cent. The realised rates of increase were, however, around the level of 15 per cent during each of the years 1994, 1995 and 1996.