IntroductionThere are signs that the global economic recovery is under way, although indications are that the initial pace of recovery is likely to be slow and distributed unevenly across countries. The severe global recession saw a synchronised contraction of advanced economies and a significant slowdown in the growth of developing economies. However, recent forecasts suggest a turnaround in the second quarter of 2009, and stronger growth prospects for the second half of the year and for 2010. Nevertheless, activity levels are likely to remain well below pre-crisis levels and important policy challenges will need to be faced. Macroeconomic policies are expected to continue to focus on restoring financial sector health and supporting the recovery until it is well established, while preparing to exit the period of eased monetary conditions adopted in response to the crisis.The domestic economy was not spared the effects of the global recession. In the second quarter of 2009 the economy recorded a third successive quarterly contraction, although the rate of contraction slowed relative to that of the previous quarter. Consistent with global growth developments, domestic economic growth is expected to improve in the coming quarters. Domestic inflation has continued to trend downwards, reaching a level just above the inflation target range in September 2009.In this Monetary Policy Review the latest developments in inflation and the factors that impact on inflation are analysed. Recent monetary policy developments are reviewed, and the outlook for inflation and the inflation forecast are presented. In addition, three issues are examined in boxes. The first box examines the degree of pass-through and the speed of adjustment in banks’ deposit and lending rates in response to changes in the benchmark repurchase rate in South Africa during the period since the introduction of the inflation-targeting monetary policy framework. The second box discusses asset-backed securitisation by South African banks, and the final box discusses the compilation and characteristics of the composite leading business cycle indicator for South Africa.