This paper sets out a framework in which a central bank under an inflation-targeting regime operates, and justifies why the interest rate hikes were necessary given the present framework of the South African Reserve Bank.
The paper is presented as follows. Section 1 makes some observations on the literature and empirical evidence from monetary policy. It identifies and discusses four important observations from the literature on inflation targeting. Section 2 discusses the South African situation in the framework sketched in section 1, while section 3 makes concluding comments.