Breaking the inflation ceiling: Analysing monetary policy responses to inflation breaches in South Africa
Year: 2025
Type: article
Abstract: South Africa’s monetary policy has generally maintained inflation within its target range, although there have been periods when it exceeded 6%. This study examines the effectiveness of monetary policy in these episodes using a time-varying parameter vector autoregressive model (TVP-VAR) and time-varying Granger causality (TVGC) from 2000Q1 to 2024Q3. The findings reveal that monetary policy actions amplify inflation in the first three quarters before gradually reducing it, reflecting a lagged effect. Strong causality is observed, particularly from lagged inflation to future inflation and interest rates, confirming the persistence of inflationary shocks. These results highlight the challenges of targeting inflation and the delayed transmission of monetary policy. Since monetary policy has an effect on inflation delays, the SARB should act proactively when inflationary pressures arise, rather than waiting for inflation to breach the upper target. Early intervention can mitigate persistence of inflation and reduce policy-induced volatility.
Source: Scientific African
Institution: University of the Free State
Language: English
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $590
OpenAlex ID: W4415336764