The South African Reserve Bank (SARB) said on Tuesday in its latest Monetary Policy Review that while many inflation-targeting countries are in breach of their targets, the system itself is not a failure.

SA adopted inflation targeting in 2000, with the first country taking the plunge being New Zealand in 1990.

However a number of exogenous factors have recently seen a number of inflation targeters missing their targets - with SA now registering a full 12 months of above-target inflation.

The Bank emphasises that the current situation does provide an important test.

It says the appropriate response is now to ensure that second-round effects are minimised.

"The more anchored inflation expectations are, the more restrained the response will be need to be. The success or failure of inflation targeting depends on whether it allows inflation targeting countries to anchor expectations and facilitates a return to a low and stable inflation environment over time, with as little cost to output as possible," said the Bank.

The SARB noted that inflation targeting since inception had generally been found to have performed well, with the levels and volatility of inflation and interest rates tending to decline, while output volatility did not worsen and exchange rate pass-through moderated.

The fact that many of these countries have missed their targets has seen a number of questions being raised about the success of the framework.

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