The neutral real interest rate is a useful concept for assessing the stance of monetary policy. In yesterday’s Monetary Policy Review, SARB published estimates that suggest that monetary policy cuts have reduced the restrictiveness of SARB’s policy stance in its assessment of where neutral rates have historically been.
Using information from the entire yield curve, we calculate long-term expectations of future interest rates: the expected 5-year government bond rate, two years into the future, adjusted for an estimated term premium. Our estimates of the bond market-implied neutral rate suggests that monetary policy has been less restrictive than SARB estimates. Our estimate of neutral suggests that neutral was lower post pandemic than SARB assumes. For the most recent quarter (2025Q1), our estimate is close to SARB’s, suggesting a broadly neutral policy stance.
Footnote
For an example of SARB’s real-time estimates of neutral see here.
Note that in earlier posts (here and here) we used 5-Y 5Y forward rates instead. At the current conjuncture, the 5Y-5Y has a similar level to the 2Y-5Y, but it did not fall as much post pandemic.
EconData‘s MPC module makes it possible for subscribers to automate any comparisons of their forecast to those from SARB.
