Introduction  Despite increased uncertainty in the global environment since the publication of the previous Monetary Policy Review in November 2004, the inflation outlook remains favourable. Inflation has remained within the target range for the past 19 months, there has been a significant decline in inflation expectations, and it is generally expected that inflation will remain within the target range for the next two years. Primarily as a result of these favourable developments, the repurchase rate was lowered by 50 basis points at the April meeting of the Monetary Policy Committee (MPC). The global environment has been characterised by uncertainties in recent months which require consideration. Developments in international oil markets have been of particular concern, as oil prices have reached record highs notwithstanding increases in output levels, and market conditions seem destined to be tight for some time. These higher oil prices have duly resulted in forecasts of global growth being revised downward. The imbalances in the United States (US) economy also remain, as does the uncertainty regarding the future path of the US dollar exchange rate. Domestically, strong economic growth has been supported by robust domestic expenditure and accompanied by a welcome expansion in formal non-agricultural sector employment. However, some evidence of an exchange-rate related slowing in activity has emerged in the mining and manufacturing sectors. The view of the MPC in this regard is that a competitive and stable exchange rate is desirable for sustainable economic growth. As usual, the Monetary Policy Review analyses inflation developments and the factors that have impacted on inflation, followed by an assessment of recent monetary policy developments and a discussion of the outlook for inflation. Three topical issues are focused on in the boxes. The first box discusses the long-term prospects for the international oil market, while the second reviews developments in house prices in South Africa and internationally. The final box looks at the objectives of monetary policy in inflation-targeting monetary policy frameworks.