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. Today’s post presents a commonly-used measure of the market-implied neutral rate, showing that it is closer to 7%, similar to the level in Mexico, where the inflation target is 3%.
We are working on new approaches for measuring these concepts and will be reporting enhanced estimates in future.
