Share 'Where should the interest rate be?'

Taylor's Rule* According to Taylor’s Rule, the prime interest rate should be: “neutral” Real prime rate (avg 09/89 – 07/95; 1999 – 2007) = 5.5% Expected CPI inflation: 4Q/2010 = 5.0% 0,5 x (currant CPI[7.9%] – CPI ‘target’[4.5%]) = 1.7% 0.5 x (output “gap”) = -2.2% Target Prime Interest Rate = 10.0% Current Rate = 11.0% With the prime interest rate still lingering at 11%, the SARB is curren…