Although our nominal policy rate at 5 per cent is above those in most advanced economies, the real policy rate is currently negative. Inflation averaged 5,6 per cent in 2012, and our forecast is that inflation is likely to temporarily breach the upper end of the inflation target range in the third quarter of 2013.
We see the risks to the inflation outlook to be on the upside, coming primarily from the exchange rate depreciation and higher unit labour cost pressures. The relatively subdued growth outlook and the negative output gap have meant that we have been more tolerant of inflation at the upper end of the target range.