Interesting...

According to the Nedbank Group Economic Unit, it provided a spirited defence of the Bank’s view of inflation and inflation targeting, highlighting the major influences and providing a fan diagram with the Bank’s two-year CPIX forecast.

There was little difference between the analysis provided in the Monetary Policy Statement released after the April MPC meeting and that contained in the Monetary Policy Review.

The only interesting addition was that the Reserve Bank explained in greater detail the evolution of their thinking at MPC meetings since December last year.

More importantly, they attempted to address growing market concerns following April’s surprise rate cut that the objectives of monetary policy have changed.

According to the Reserve Bank, nothing has changed and achieving the inflation targets remains the primary and overriding objective of monetary policy.

In the review they assert that: ‘The purpose of achieving this objective is not to achieve low inflation for its own sake, but to provide a stable platform for sustainable economic growth’.

Somewhat more controversially they go on to contend that: ‘When inflation is comfortably within the inflation target range, monetary policy has a greater degree of freedom to focus on other factors as well’.

Within this context, they conclude that concern over the impact of the rand on growth prospects is entirely consistent with the inflation-targeting framework.

The Monetary Policy Review suggests that a much greater weight will be given to real economic factors in future policy decisions. This increases the chances of a further easing in monetary policy as well a financial market volatility going forward.