The high prevailing borrowing rate of some small borrower – say 15 percent today – is held out as Exhibit A of the central bank’s inconsiderate policies, never mind that the rate charged includes the policy rate of 6.5 percent plus an additional spread of 8.5 percent, consisting of a default risk premium, a term premium, an inflation risk premium, and the commercial bank’s compensation for costs, none of which are directly affected by the policy rate.
In the application of inflation targeting in South Africa, it was decided to leave the external value of the rand to the market and not to intervene in the foreign-exchange market to influence the exchange rate. It was realised that this could lead to volatility in the exchange rate of the rand.