What Would Inflation and Repo Rate Be in the Absence of Increased Government Expenditure?
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The chapter assesses the extent to which public expenditure impacts the exchange rate pass-through to inflation and the response of the repo rate. Evidence suggests that inflation would increase more due to rand depreciation shock in the presence of growth in public expenditure. The repo rate rises but the increase is slightly lower than what it would be when growth in public expenditure is shut off. The findings indicate that monetary policy is tightened in response to inflationary pressures.