Introduction Inflation has remained within the target range for the past 13 months. This outcome was achieved through responsible monetary and fiscal policies, improved inflation expectations, and the continued steadier performance of the rand that have contributed to a favourable inflation environment which has allowed lower interest rates and provided the foundation for economic growth. Furthermore, despite concerns regarding developments in international and domestic markets, various measures of inflation expectations, including the Bank's own forecasts, currently anticipate inflation remaining within the target range in the coming years. These developments include the rising international oil prices and buoyant domestic demand. The favourable CPIX inflation outlook meant that there was room for the Monetary Policy Committee to lower the repo rate by 50 basis points at its August 2004 meeting, the first change in the monetary policy stance this year. The repo rate remained unchanged at the October meeting of the Monetary Policy Committee. This Monetary Policy Review provides an overview of developments in inflation and an analysis of the factors that have impacted on inflation, focusing on the past six months. This is followed by a discussion of recent monetary policy decisions, and an appraisal of inflation expectations. Finally, the Reserve Bank's inflation forecast is presented. As usual, there are also boxes highlighting topical issues. The first box considers Statistics South Africa’s recently published discussion document on the compilation of an official index of administered prices. The second discusses the current international commodity price boom and its impact on the South African economy, and the final box reflects on the "natural rate of interest" and the usefulness of the associated real interest rate gap measure of the monetary policy stance for policy-makers.