The South African Reserve Bank (SARB) said on Tuesday in its latest Monetary Policy Review that the problem that has been facing the Monetary Policy Committee is that it has had to deal with a "multiplicity of shocks of extended duration".

SA's central bank has been accused of focusing on inflation busting rather than being growth friendly, but it explains that it needs to react to second-round or generalised effects when they pass through.

"In general, there is little that monetary policy can do to avoid first-round, or impact effects of supply-side shocks," it explains.

The standard response is to allow for these one-off increases.

The Bank is now concerned about the loss of the inflation anchor.

"If inflation expectations are well anchored, the required monetary policy response could be relatively restrained," it said.

The Bank says that there has, for example, not been a one-off increase in oil prices, but a significant and extended upward trend.

"The severity of these developments has, in turn, adversely affected inflation expectations which, in turn, contributes to more generalised inflation," says the Bank.

The bank raised rates on 10 April to a mixed reception, but it concludes that during the past three MPC meetings there had been a consistent deterioration of the inflation forecast of the Bank, primarily as a result of upward revisions to the assumptions relating to exogenous variables in the model.

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