A monetary policy framework is the roadmap or approach used to achieve monetary policy objectives. In its most basic form, monetary policy can be based on rules or on discretion.
In the pursuit of its primary monetary policy objective, i.e. price stability, a central bank can opt for any one of several monetary policy frameworks. The most important monetary-policy frameworks include:
- A discretionary monetary policy framework
- A framework with a nominal anchor such as fixed gold price
- Exchange rate targeting
- Money aggregate targeting
- Inflation targeting
- Interest rate targeting and
- Nominal income targeting
The South African monetary authorities (the Government and the Bank) have opted for inflation targeting as the monetary policy framework of the country. The responsibility for monetary policy decisions is entrusted to the Bank’s Monetary Policy Committee (MPC).