IntroductionSince the publication of the previous Monetary Policy Review in October 2001, there have been a number of significant developments relevant to monetary policy. Firstly, there was the announcement of the new inflation targets for 2003 up to 2005. The new targets announced by the Minister of Finance in October 2001 were informed by technical input from the joint South African Reserve Bank/National Treasury Inflation-Targeting Technical Committee. The committee made recommendations to the Governor and the Minister of Finance, who jointly decided on the targets. The new targets were for an unchanged range of 3-6 per cent for 2003, and a lower target range of 3-5 per cent in 2004 and 2005.The unchanged target for 2003 was recognition of the fact that monetary policy actions in late 2001 and 2002 would be reflected primarily in the 2003 inflation outcomes. Evidence from other countries suggests that the lag between monetary policy changes and their impact on inflation could vary between 3 and 12 quarters. Research shows that the lag in South Africa is around 6-8 quarters and implies that the target must be available at least two years in advance (see Box 1 in the October 2001 Monetary Policy Review). Although current changes in the monetary policy stance will have some impact on 2002 inflation, the main impact is likely to be on the inflation outcome in 2003.The second significant development was the continued depreciation of the rand, accelerating in November and December. This contributed to a turnaround in CPIX inflation that had fallen below the upper end of the 2002 target of 3-6 per cent in September and October. Until then there had been surprisingly little pass-through of the exchange rate depreciation to production prices and consumer prices. There was, however, an underlying concern that this was not a sustainable situation. As is shown below, the category that contributed most to the acceleration of CPIX was food, which has become more subject to international pricing than in the past. The Monetary Policy Committee (MPC) decided at an unscheduled meeting in January 2002 to raise the repo rate by 100 basis points to 10,5 per cent. This was primarily a pre-emptive move to forestall the possible second-round effects of the rand's depreciation on inflation, particularly in the light of the turnaround in inflation expectations. Since that move, the inflation figures have deteriorated significantly, as did other indicators of inflationary pressure, and expectations of higher inflation appear to have become more entrenched. Consequently the MPC increased the repo rate by a further 100 basis points to 11,5 per cent in March.Although the final inflation outcome for 2002 will only be known for certain early in 2003, the Bank's latest inflation forecast that incorporates the unexpectedly large depreciation of the rand, indicates that there is a strong possibility that the CPIX target for 2002 may not be achieved. At this stage however there is not much that monetary policy can do in this regard, given the lags between monetary policy actions and their effects on inflation. South Africa is now beginning to feel the full brunt of the first-round effects of the rand's depreciation, and monetary policy, as has always been the Bank's stated intention, will be focused on mitigating the second-round effects. The MPC is confident that the changes to the monetary policy stance effected since January are consistent with achieving the target of 3-6 per cent in 2003. In theabsence of major unexpected negative shocks, the Bank's forecasts also suggest that this target will be attainable.As usual, the Monetary Policy Review analyses inflation developments and the factors that impact on inflation. This is followed by an assessment of recent monetary policy developments and a discussion of the inflation outlook as well as the Reserve Bank's inflation forecast. Three topical issues are focused on in the boxes. The first box analyses the new weights in the CPIX as calculated by Statistics South Africa. The second box addresses the i