mpc meeting, when the rand was trading at around r11. 80 against the us dollar, the exchange rate was assessed to be somewhat overvalued, and we viewed further appreciation potential to be somewhat limited. since then, this view has been reinforced by a number of global developments that have clouded the outlook. the global outlook and risks for some time now, the global context has been relatively supportive and benign. global growth has been picking up in a steady but synchronised manner, and global inflation has remained low, allowing monetary policies in the advanced economies to remain broadly accommodative. this environment, together with unusually low financial market volatility, has contributed to the continued strong capital flows to emerging markets. there are, however, a number of indications that this goldilocks period is probably over. financial market volatility has re - emerged. some investors appear concerned about potential upside inflation surprises in the us, which could usher in a considerably faster pace of normalisation than the one currently being signalled by the us federal reserve ( fed ). furthermore, fiscal expansion in the us could place additional upward pressure on both us short - and long - term interest rates, with negative spill - over effects on most emerging market currencies and bonds. additional risks to many emerging - market assets stem from the recent rise in oil prices and international trade tensions. the recent increases were underpinned by opec ’ s5 resolve to continue restraining supply in order to support prices. it is too early to tell whether the us shale oil producers, as the new swing producers in the market, will 5 organization of petroleum exporting countries page 8 of 10 respond in a meaningful way and either cap or moderate these increases. and while the trade conflict seemingly developing between the us and china is perhaps best described ( for now ) as a skirmish, it could easily develop into a larger - scale trade war. any broader retreat from a multilateral, rules based global trade system would not leave emerging markets unscathed. global value chains would be affected, while reduced risk appetite could undermine cross - border capital flows. i should note that while these recent developments are likely to create challenges for south africa and emerging markets in general, not all emerging market economies are equally vulnerable to higher advanced economy interest rates. in fact, it is generally accepted that most have become more resilient since the so - called ‘ taper tantrum ’ of 2013. their macroeconomic fundamentals have generally improved

% in both 2019 and 2020. second, there has been a welcome decline in inflation expectations, as reflected in the survey conducted by the ber. for some time, these expectations had been stuck at around the upper end of the target range. in the most recent ber survey, however, the average declined by half a percentage point to 5. 2 % and 5. 3 % for 2018 and 2019 respectively. similarly, the five - year - ahead inflation expectations declined to 5. 3 %, their lowest since they were first surveyed in 2011. the sarb recognises, however, that one reading does not constitute a trend, and we would need to see further declines, or at least a stabilisation at these recent levels, to feel confident that inflation expectations have fallen on a sustained basis. furthermore, to the extent that inflation expectations are backward - looking, it could take some time for these expectations to move to lower levels, particularly if actual inflation is expected to trend upwards from here on. in other words, it is too early to declare victory in our quest to anchor inflation expectations closer to the midpoint of the target range. this improved inflation environment has contributed to a sounder macroeconomic environment, one where earnings are not eroded at an excessively fast rate. it has also afforded some room for monetary policy to remain accommodative for now and help foster improved economic growth. at the most recent mpc meeting, the repurchase rate ( repo rate ) was reduced by 25 basis points to 6. 5 %. with mediumterm inflation expectations at just over 5 %, this implies a real repo rate of around 1. 5 % compared with the sarb model ’ s estimate of the current neutral rate of around 2 %. the mpc ’ s assessment at that time was that the risks to the inflation outlook were more or less balanced. in its deliberations, most of the upside risks emanated from external sources. these risks are transmitted to the economy via the exchange rate and, by extension, to the risks to inflation. page 7 of 10 as an inflation - targeting central bank, the sarb does not target the exchange rate but rather focuses on the second - round effects of exchange rate changes ( in both directions ) on the inflation outlook. this implies that our assessment of the risks to the rand is an important, although certainly not the only, determinant of how we see the inflation trajectory going forward. at the march 2018