IntroductionInflation has remained within the target range for the past 25 months, more recently against the backdrop of a strongly growing domestic economy and robust domestic demand. Although the inflation outlook has deteriorated moderately over the past few months, mainly as a result of developments in international crude oil prices, there is as yet little evidence of inflationary pressures passing through to inflation. The stance of monetary policy has consequently remained unchanged since the publication of the previous Monetary Policy Review in May.The developments in international oil prices and the robust domestic demand, partly reflected in accelerating bank credit extension, are important themes in this review of monetary policy. The impact of these developments on inflation expectations is particularly important, given the role that expectations play in the wage and price-formation process. Although there are signs that inflation expectations have deteriorated recently, they nevertheless remain consistent with the inflation target. However, a continued deterioration of inflation expectations would be a cause for concern.This review of monetary policy begins by analysing 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 South African Reserve Bank’s (Bank’s) inflation forecast. Three topical issues are addressed in the boxes. The first box focuses on the official administered price index recently released by Statistics South Africa, while the second box reports on research into the demand for the M3 monetary aggregate in South Africa. The final box addresses the question of how policy should respond to oil price shocks and provides an overview of recent thinking in this regard.