Secondly, the pursuit of inflation targets does not mean that the Reserve Bank is not concerned about the achievement of sustained high economic growth and employment creation. Monetary policy cannot contribute directly to sustainable economic growth and employment creation. However, by creating a stable financial environment, monetary policy fulfils an important precondition for the attainment of economic development.
Empirical evidence has shown that high and variable inflation is bad for economic growth and that price stability is beneficial to a country’s performance. Thirdly, to be successful, inflation targeting requires nominal exchange rate flexibility. Trying to maintain an inappropriate exchange rate may be costly in terms of domestic economic activity.