SARB made important changes to forecasting model
The South African Reserve Bank (SARB) made changes in one of its main forecasting models earlier this year that should result in the model predicting less persistent inflation and fewer rate hikes after a spike in inflation.
The changes to the Quarterly Projection Model, a tool used by the central bank's Monetary Policy Committee, were made before the bank's July rate meeting. They were only made public in a little-known economic bulletin in September.
Analysts say the changes should improve the credibility of the model's forecasts.
"You can view modelling and forecasting as a lofty science, but more interesting is to view it as part of the SARB's credibility and communications arsenal. They won't get things right all the time, but they ask interesting questions to guide the MPC," said Peter Attard Montalto, head of capital markets research at Intellidex.
The new model incorporates a better treatment of inflation expectations and a more reliable wage measure, making it more accurate, the Reserve Bank said.
The bank used the example of a 1 percent shock to core inflation to illustrate the changes. The model shows that after the bank raises its main lending rate in response to the spike in inflation, both inflation and the repo rate fall faster than under the previous model.
"The previous version entailed implausibly persistent shock effects, sometimes lasting almost eight years," it said.
The Reserve Bank said the changes to the model had little effect on its July and September forecasts. A weaker rand assumption and a more negative output gap estimate had more significant effects on the forecasts, it said.
In September, the implied path of policy rates generated by the bank's Quarterly Projection Model was for five rate increases of 25 basis points by the end of 2020.
Comments
Press Office
Announcements
What's On
Subscribe to improve your user experience...
Option 1 (equivalent of R125 a month):
Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format
Option 2 (equivalent of R375 a month):
All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors
including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.
Already a subscriber?
Forgotten your password?
Receive weekly copy of Creamer Media's Engineering News & Mining Weekly magazine (print copy for those in South Africa and e-magazine for those outside of South Africa)
➕
Recieve daily email newsletters
➕
Access to full search results
➕
Access archive of magazine back copies
➕
Access to Projects in Progress
➕
Access to ONE Research Report of your choice in PDF format
RESEARCH CHANNEL AFRICA
R4500 (equivalent of R375 a month)
SUBSCRIBEAll benefits from Option 1
➕
Access to Creamer Media's Research Channel Africa for ALL Research Reports on various industrial and mining sectors, in PDF format, including on:
Electricity
➕
Water
➕
Energy Transition
➕
Hydrogen
➕
Roads, Rail and Ports
➕
Coal
➕
Gold
➕
Platinum
➕
Battery Metals
➕
etc.
Receive all benefits from Option 1 or Option 2 delivered to numerous people at your company
➕
Multiple User names and Passwords for simultaneous log-ins
➕
Intranet integration access to all in your organisation