Introduction Although inflation remains within the target range, recent economic developments indicate that there are significant risks to the inflation outlook. Since the publication of the previous Monetary Policy Review in May, the domestic economy has continued to grow strongly, with buoyant domestic demand supported by strong credit extension. The exchange rate has depreciated somewhat, pressure from production prices has emerged, and the deficit on the current account of the balance of payments continues to be at higher levels. The outlook for domestic economic growth, however, remains generally positive. International oil prices, having reached record high levels in August, have receded somewhat, and this has impacted positively on domestic petrol prices. Global growth is expected to moderate slightly in 2006 and 2007, while world inflation is anticipated to remain under control with tighter monetary conditions prevailing in most parts of the world. These and other developments resulted in the Monetary Policy Committee (MPC) raising the repo rate by 50 basis points at the June 2006 meeting, the first change in the monetary policy stance since April 2005. This was followed by successive 50-basis-point increases at the August and October 2006 meetings, as the MPC sought to ensure that the monetary policy stance remains consistent with achieving the inflation target. 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 outlook and uncertainties relating to some of the factors that are considered by the MPC in setting monetary policy. As usual, three topical issues are addressed in the boxes. The first box reports on research into the estimation of a trimmed mean measure of core inflation for South Africa, while the second box provides information on surveys that measure business confidence and trade conditions. The final box assesses the accuracy of the forecasts of inflation provided by the Bank’s suite of models.