Monetary Policy Credibility and Inflation Expectations: Exploring an Unconventional Channel in South Africa 

Conventional monetary policies have been tested by the various shocks that have recently affected the globe. As a result, the effectiveness of traditional tools in dealing with contemporary shocks have been questioned in recent literature. In South Africa, relatively high inflation levels and sluggish growth rates when compared to other emerging economies have made it difficult for the South African Reserve Bank (SARB) to maintain credibility through its monetary policies. This study ascertained if a forward guidance unconventional monetary policy measure is one way to help regain monetary policy credibility. Using the ARDL technique, the study assessed whether the monetary policy credibility level altered the economic agents' views on inflation expectations within South Africa in the short run and long run. The study found that asymmetric credibility at a threshold of 5.5% lowered inflation expectations. The findings show the potential of a forward guidance unconventional approach, which can aid the SARB in targeting the real economy.