We set out to stabilise inflation and anchor expectations through an inflation-targeting framework, and we chose to accumulate reserves to enhance South Africa’s robustness to external shocks. These reforms paid off: within a few years, we closed the forward position and inflation expectations stabilised within the inflation target range. We have been benefiting from these policies ever since.
There is one instance, of course, in which inflation can bring down interest rates, and that is by reducing the real value of debt so that it is worth less when repayment is due. But this only works once.