​Monetary policy in South Africa confronts the prospect of a prolonged breach of the inflation target, even as growth trends lower. The policy rate has been increased, most recently by a quarter of a percentage point at the March 2016 meeting of the Monetary Policy Committee(MPC). This rate has now been raised by a total of 2 percentage points since January 2014, when forecasts for inflation first began showing significant risks of sustained target breaches. Monetary policy remains in a tightening cycle, although this is subject to data outcomes.The period since the publication of the previous Monetary Policy Review (MPR) in November 2015 has been characterised by volatility and uncertainty in financial markets alongside generally disappointing real economy news. Global growth slowed sharply in the final quarter of 2015. Some of this weakness is expected to be temporary, as the United States (US) rebounds from an unusually subdued quarter. But other major economies have underperformed more persistently. The euro area and Japan are barely expanding, while emerging-market performance continues to deteriorate. In China’s case this has entailed a shift from rapid to moderate growth. Brazil and Russia, by contrast, are in protracted recessions. In an environment of weak demand, commodity prices have fallen and world trade growth has slumped. Global inflation continues to be unusually low, although some countries, particularly commodity exporters, have experienced rising inflation linked to currency depreciation.Growth in the South African economy has decelerated markedly since 2011. Output increased by just 1,3 per cent in 2015 and forecasts suggest growth will be less than 1 per cent this year, the slowest pace of expansion since the Great Recession, and before that, the emerging-market crisis year of 1998. In the recent past, disappointing growth outcomes have been traceable tospecific shocks, including strikes, electricity shortages and drought. But the outlook now indicates more diffuse sources of weakness. Consumer and business confidence is low in historical perspective. The South African Reserve Bank’s (the Bank’s) leading indicator of business activity trended lower throughout 2015 and fell further in early 2016. Over the forecast period, growth is expected to be low despite a highly competitive exchange rate, significant public borrowing and a low real policy rate. Net exports face headwinds from declining commodity prices and slowing world trade growth. Government is entering a period of intensified fiscal consolidation. Households remain under pressure, burdened by debt and high levels of unemployment, among other factors. Businesses continue to see limited opportunities for expansion.Despite slowing gross domestic product (GDP) growth, inflation in South Africa has begun to accelerate again, after a year of relatively moderate price increases. Inflation in 2015 averaged 4,6 per cent, very close to the midpoint of the 3–6 per cent target range, mostly due to sharply lower world oil prices. This positive price shock, however, has had few lasting effects on the longer-term inflation trajectory. Core inflation dipped only marginally over the course of the past year and indicators of longer-run inflation expectations were essentially unmoved. Inflation has since rebounded to 6,2 per cent in January and 7,0 per cent in February, the highest rate in the post-crisis period. It is expected to average well over 6 per cent in both 2016 and 2017.The past few months have also seen considerable market volatility from both domestic and foreign sources. In December 2015 the rand exchange rate, equity markets and bond yields all moved abruptly following the removal of Nhlanhla Nene as finance minister. The losses were partially reversed five days later, but a portion of the adjustment was more persistent. The rand for instance, shifted out of a range between R13 and R14,60 to the US dollar in which it had moved since August, trading at over R15,50 in late December.In this fevered environment, the US Federal Reserve’s (the Fed’s) m