Author(s): Christie S. Taderera, Raynold Runganga, Simbarashe Mhaka, Syden Mishi
This study examines the relationship between inflation rate, interest rate and economic growth in Southern African Customs Union (SACU) countries. Panel data for SACU countries was analysed using Pooled Mean Group (PMG) estimator, Dynamic Ordinary Least Squares (DOLS) and Fully Modified Ordinary Least Squares (DOLS) to enable isolating short and long run effects and for robustness. The results of the study shows that inflation has a positive impact on economic growth while lending rate has a negative impact on growth in the long run. These results imply that policymakers should allow a high and sustainable inflation rate in order to promote economic growth while interest rate as a monetary policy instrument can be used to achieve the desired inflation rate, having a positive impact on economic growth.