The primary objective of monetary policy in South Africa is to achieve and maintain price stability in the interest of sustainable and balanced economic development and growth. Price stability reduces uncertainty in the economy and, therefore, provides a favourable environment for growth and employment creation. Furthermore, low inflation contributes to the protection of the purchasing power of all South Africans, particularly the poor who have no means of defending themselves against continually rising prices.
The Bank has full operational autonomy. Monetary policy is set by the Bank’s Monetary Policy Committee (MPC), which conducts monetary policy within a flexible inflation-targeting framework. This allows for inflation to be out of the target range as a result of first-round effects of a supply shock and for the Bank to determine the appropriate time horizon for restoring inflation to within the target range. This flexibility does not relieve the Bank of its responsibility with respect to returning inflation to within the target range but allows for interest rate smoothing over the cycle, which may mitigate any output variability from the monetary policy response to the shock.