In this respect, the European Commission, in cooperation with the ECB, is defining broad guidelines for asset relief measures. Overall, the decisions governments took in October have helped to avert a major breakdown in confidence in the banking sector. Some of the measures are still being implemented or under consideration. The success of these measures ultimately depends on the financial institutions themselves.
At the same time, high inflation discourages domestic savings, thus increasing reliance on foreign investors who are more likely to prove risk-sensitive and demand a premium because of inflation volatility. High uncertainty premiums can, in turn, result in misallocation of capital, with small and medium enterprises (SMEs) in particular struggling to access funding. Why has South Africa’s inflation struggled to decline?