The monetary policy committee (MPC) lowered the policy rate of the South African Reserve Bank (SARB) by 25 basis points to 7.5% last week, as widely expected. The SARB’s projection for the policy rate is 7.4% at the end of 2025, creating speculation about whether further policy easing is likely at the next meeting in March.
The language in the MPC’s statement has recently shifted away from “data dependence” towards “outlook dependence”. Normally, this would have been a welcome change, as it would have signalled clearer monetary policy guidance. However, that statement is preceded by emphasis that “its decisions will be made on a meeting-by-meeting basis, with no forward guidance and no pre-commitment to any specific rate path”.
This is odd, given that the SARB publishes a forecast of its rate path. Why publish forecasts if these do not represent forward guidance?
The SARB publishes an expected policy rate path from its main forecasting model, the quarterly projection model (QPM), which ensures that the policy path is consistent with achieving its inflation target over the medium term, while producing forecasts for the exchange rate, growth and inflation that are based on the same interest rate track and conditioning assumptions. Having published the model and its code, the SARB helps the public understand how it would need to react to specific economic and financial shocks to prevent persistent deviations of inflation from the target.
Yet the MPC regularly disowns QPM projections, saying that QPM “remains a broad policy guide” only. The chart below shows that several MPC decisions have even differed from the policy rate forecasts at the time of MPC decisions. It is confusing to the public when its forecasts are not based on the actual decisions made by the MPC, undermining the MPC’s credibility.

It would be better for the MPC to label the projections it publishes as “staff projections” (as the US Federal Reserve does). This would make it clear that the forecasts are not based on the views of MPC members. It would also help if the MPC formally explained how the members’ views about the outlook differ from what has been assumed in the QPM.
A more challenging alternative would be to align QPM projections with assumptions representing the consensus of the MPC members, as is done by the Bank of England. Economists tend to disagree, so it can be hard to achieve consensus or characterise the diversity of views around how the economy works and how policymakers should respond. The Bank of England achieves this because it has a well-defined decision-making process and sophisticated forecasting technology that makes it easy to update forecasts and incorporate MPC assumptions, as well as a culture that promotes constructive debate and consensus-building.
Avoiding accountability?
Why does the MPC prefer uncertainty around how its decisions are made? One reason is its concern that being more transparent about its assumptions might damage its credibility if those assumptions turn out to be wrong. The other reason is a preference for policy discretion. Yet claiming decisions to be data dependent or that no forward guidance should be taken from its statements is simply an attempt to avoid accountability.
The central bank should not just be reactive to things that have already happened. Whether the MPC likes it or not, the market already prices in expectations of what it will do in future. Market participants are not stupid – they understand that the SARB’s policy rate projections are conditioned on its published assumptions about the outlook, which are all subject to revision every six weeks when the MPC meets.
We have shown in previous research that the MPC could reduce differences between market pricing of interest rates, QPM projections and MPC policy settings by being more transparent about the information used to make decisions and its underlying assumptions.
A preference for policy discretion explains the MPC’s schizophrenic communication and its reluctance to publish regular detailed alternative scenarios or forecast error analysis through the lens of QPM. The future is always uncertain, and forecasts might be wrong more than they might be right. Yet the credibility of the MPC hinges not on forecast accuracy, but on ongoing demonstration that it is incorporating relevant information and reasonable judgments in a coherent decision-making framework.
If the MPC is so committed to an outlook-dependent, risk-based approach to monetary policy, as emphasised by the governor, then it needs to be specific about its assumptions, and must describe in detail how its narrative is shifting over time.
The International Monetary Fund agrees. It recently assessed the SARB’s transparency and recommended that risk scenarios be published, the ownership of forecasts be clarified, and post-mortems of its monetary policy framework and its implementation be made public.
The governor continues to advocate for a lower inflation target and announced at the MPC media conference that it will host an inflation targeting conference in March this year. The possibility of a reduction in the target implies that the SARB’s projections may need to be materially revised for future MPC decisions.
We expect that a lower target would require monetary policy to remain restrictive for longer than the SARB currently projects to shift inflation expectations to a lower long-term anchor. To avoid unnecessary market volatility, the MPC will need to improve how it communicates its collective judgments and policy preferences.
Dr Daan Steenkamp is CEO of Codera Analytics and a research fellow with the economics department at Stellenbosch University.
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