Evaluating monetary policy rate settings under data uncertainty in South Africa

This paper evaluates 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. Our findings emphasise the importance of communicating uncertainty around the central bank's assessment of the state of the economy, inflation expectations and price setting, and the expected path of inflation. We argue that, in the absence of a sequence of favourable economic shocks, South African interest rates will likely have to remain restrictive for longer than SARB currently assumes.