The inflation-adjusted policy rate is a back-of-the-envelope measure of the stance of monetary policy. South Africa’s policy rate is still slightly lower than current inflation, but is higher than where surveys expect inflation will average over the next year or two. The divergence between the real rate obtained using backward-looking and forward-looking inflation is currently the largest since just before the global financial crisis of 2008. Whether policy is assessed to be tight at the moment therefore depends on one’s view of whether inflation will return to within the target range next year.
