of education, skills shortages and settlement patterns – people aren ’ t living near jobs. these are not problems that monetary policy can solve. if we did have the ability to create jobs generally, that would be a powerful tool for reducing inequality. but in fact, as a central bank, our ability to create jobs for anyone is weak in the short run and non - existent in the long run. if we were in a skills - rich country like the us, with flexible labour markets, there would be a respectable argument that low interest rates could help ease inequality by bringing down unemployment caused by a recession. 14 but that ’ s not the economy we ’ ve got, and that ’ s not the labour market we ’ ve got, so this isn ’ t an option for monetary policy here. see table 3. 7 of the 2014 / 15 living conditions survey, p. 18, available at http : / / www. statssa. gov. za / publications / p0310 / p03102014. pdf. see, for instance, ben bernanke ( 2015 ), monetary policy and inequality, available at https : / / www. brookings. edu / blog / ben - bernanke / 2015 / 06 / 01 / monetary - policy - and - inequality /. as discussed in banerjee et al. ( 2006 ), why has unemployment risen in the new south africa?, p. 6, available at https : / / www. hks. harvard. edu / sites / default / files / centers / cid / files / publications / facultyworking - papers / 134. pdf. page 12 of 15 interest rates and inflation the final channel i ’ d like to discuss is inflation. inflation is a problem from an inequality perspective because it tends to hurt poor people more. one reason for this is that poorer people have less choice over spending. poor people ’ s consumption baskets are mostly taken up with a few basic items, especially staple foodstuffs and shelter. richer people buy many more kinds of things, so they have more room to adjust away from items that get too expensive. 15 a second reason why inflation exacerbates inequality is that it is harder for poorer people to protect their wages and savings against inflation. if you have a job where you get a cost - of - living increase every year, or if you have some assets which keep their real value despite inflation, like krugerrands or a house, then you can avoid

to get at a deeper understanding of how monetary policy affects inequality. i will discuss the four main channels through which monetary policy affects inequality : borrowing costs, asset prices, employment and growth, and finally inflation. i will demonstrate that a decision to go for a loose monetary policy is likely to worsen inequality and make it more extreme. interest rates and borrowing costs what south african households borrow for, and at what rate of interest, depends mostly on their jobs and income. we can break these households down, very roughly, into two groups : the top 20 % of the income distribution and the bottom 80 %. a team at the university of cape town has built an online income comparison tool which tells you where your household actually fits in, and which i suggest everyone should try. 5 to give away the punchline, however : if your family income exceeds r173 000 a year, or about r14 400 a month, then you are in the top 20 % of households. getting into the top 10 % of the income distribution requires see http : / / www. saldru. uct. ac. za / income - comparison - tool /. page 6 of 15 just under r270 000 a year, or r22 500 a month. 6 the average government salary is r335 000 a year, which is within the top 10 %. 7 compare those income levels to a household in the poorest 10 % of south africans, which is getting less than r17 721 per year. that is under r1 500 per month. that ’ s roughly a tenth of what a family just within the top 20 % is getting. these income differences play out in the amount of debt households can take out and the interest rates they pay. when the monetary policy committee ( mpc ) moves the repurchase rate ( or repo rate ), households immediately see the difference in their mortgage payments or their car payments. but what does this do for inequality? the reflex answer is that, in south africa, there are both rich and poor people, and the poor borrow from the rich, so higher interest rates increase inequality while lower rates, or looser policy, reduce it. but this is misleading. south africans in every income bracket tend to have a lot of debt. the national credit regulator reports that there were a bit more than 25 million ‘ credit active ’ people in south africa at the end of last year, which compares with around 16 million people who have some sort of employment