Our own models suggest that, because of the rigidities in the domestic wage and price formation process, the output gap does not have a large impact on inflation trends. By contrast, the sensitivity to changes in the rand, which could easily depreciate in the event of sizable rate cuts, is generally higher, even if it appeared to decline in recent years.
Conclusion: the merits of a stability-oriented framework  Nevertheless, monetary policy does have a role to play in attaining stronger, more sustainable economic growth in South Africa. However, it remains the SARB’s view that the best way it can assist in reaching this goal is by fostering medium-term price stability so as to minimise the distortionary effects of a volatile inflation.