Page 10 of 14  This does not mean the SARB should avoid all rate cuts. Rather, we should avoid cutting if the price of doing so is permanently higher inflation. We can cut rates if we feel confident we can keep inflation under control over time. Our modelling framework balances growth and inflation over the medium term using a Taylor rule.
If the model sees growth underperforming the economy’s potential, the rule suggests a looser policy stance. If inflation is simultaneously higher than the target, it compromises, aiming both to hit the inflation target and to move growth back to potential over the forecast period, of two to three years.