Question

e) Based on the information in the Press Release, in the thinking of the MPC did the risk to growth outweighed the risk to inflation or vice versa? Refer to specific points from the press release to back up your argument

Answer 1

Yes, according to the MPC the risk to growth outweighed the risk to inflation as inflation has been benign all over the world and in the country because there has been limited demand for goods and services.

Because of limited demand in the economy and people cutting down discretionary spending there is limited risk to inflation. Plus as per the press release, the oil prices have also been low thereby holding down consumer price inflation.

On the other hand economic growth is expected to slacken and contract actually, according to forecasts as the unemployment rate was high and there was a surge in job losses. Economic outlook over the medium term is expected to be severely impacted.

Even though the inflation rate has declined there is continues flow of credit at lower interest rates, which further signifies that the MPC wants to increase money supply and bring about growth in the economy. Thus one can realise that their main goal is economic growth and that risk to growth outweighs risk to inflation, which is why they are focusing on reviving the growth rate.