In our latest Policy Brief we evaluate the South African Reserve Bank’s historical monetary policy stance by applying different inputs to the Bank’s forecasting model’s Taylor rule specification. We quantify the impact of input measurement on assessments of the appropriate policy stance, as well as the impacts of a shift to a lower inflation target. To provide a heuristic of the impact of using alternative inflation expectations series, we swap out the SARB’s expected inflation series and neutral estimates in its Taylor rule for our market-implied estimates. We demonstrate that if one were to base expected inflation on market-based measures instead of survey-based measures, then policy would need to tighten to ensure that it will achieve a 3 percent target over the medium-term.
