SARB argues that a lower target implies that monetary policy has shifted to a mildly restrictive stance. SARB’s current neutral estimate is 2.8% for 2025 after adjusting for inflation (5.8% nominal assuming a 3% inflation target or slightly above 6% if inflation expectations are assumed to be partly backward-looking). This implies tight policy as the current 7% policy rate is above that level. We estimate that the market-implied neutral rate is closer to 7%.
