With mediumterm inflation expectations at just over 5%, this implies a real repo rate of around 1.5% compared with the SARB model’s estimate of the current neutral rate of around 2%. The MPC’s assessment at that time was that the risks to the inflation outlook were more or less balanced. In its deliberations, most of the upside risks emanated from external sources.
More generally, by lowering interest rates, fiscal consolidation should diminish net capital inflows into the United States, thereby reducing the current account deficit in this country and current account surpluses elsewhere. The resulting pattern of international debt accumulation and capital flows would be more balanced than at present, promoting a more sustainable pattern of growth in the global economy.