the year progressed and the rand weakened across the board, inflation risks heightened and prompted the decision to resume the hiking cycle in july 2015. in general, the mpc aims to see through the first round effects of exogenous shocks. however, in the context of prolonged currency depreciation, the first and second round effects are harder to disentangle. as such, the bank decided to increase the policy rate to minimise the risk of second - round effects and the need for a stronger reaction in the future. but the impact of a weaker currency is not limited to its effect on inflation. the currency impacts on real output through two channels, namely, trade and income. with regard to the former, theory states that currency depreciation will boost net exports, as exports become relatively cheaper in the world market. however, as a result of the prevailing structural constraints, the potential benefits from depreciation to exporters and import - competing firms have not fully materialised. as far as the income effect on growth is concerned, currency depreciation, and the ensuing rise in inflation, will lead to a decline in real wages and real disposable income, all else being equal. this in turn would negatively impact on real household expenditure and real gdp growth. while some may question our decision to further raise rates in november given the weak growth outlook, the income channel highlights the growth enhancing effect of keeping inflation under control. the sarb decided to raise rates in july and november 2015 in order to prevent potential second - round inflationary effects from occurring and to anchor long - term inflation expectations, which remain uncomfortably close to or above the upper band of the inflation target. in general, risks to the inflation outlook for 2016 remain tilted to the upside and have recently deteriorated further. rand depreciation, electricity tariff increases, and the impact of the drought on food prices are expected to outweigh the impact of lower oil prices. nevertheless, the bank has made it clear that any future decisions will be data dependent and driven by the developments in the inflation outlook. it may be useful to comment on this concept of data dependency, which some have argued was violated in the wake of our most recent policy adjustment in november 2015. we think of “ data ” in the broader sense of all pieces of information on a collective basis that in our judgement may have a bearing on the inflation trajectory in the medium term, rather than only in a narrower sense of looking at individual economic indicators as they are released.

include those of kydland and prescott ( 1977 ) and of barro and gordon ( 1983 ). these studies argue that, in the short term, there is the temptation for monetary policy to exploit a seemingly existing trade - off between employment and inflation through expansionary policy measures. in the long run, however, there is no such trade - off because, given the adjustment of inflation expectations, these measures would be systematically anticipated and would thus be rendered completely ineffective. the outcome would simply be higher inflation without any benefits to employment or growth. the ecb ’ s mandate and its independent status are laid down in the european treaties. these treaties were ratified by democratically elected parliaments in all member states and, in some countries, by referenda. the core elements of the monetary union – namely price stability as the primary objective of monetary policy and an independent central bank – have remained unchanged in each of the treaty revisions since first laid down in the maastricht treaty in 1992. accordingly, they were reconfirmed and re - legitimised through the ratification of the lisbon treaty by now 27 eu member states. the members of the ecb ’ s decisionmaking bodies are appointed by democratically elected politicians. in addition, provisions are in place in order to ensure the personal independence of individual monetary policy - makers. for example, the term of office for members of the executive board of the ecb is limited to eight years, and is non - renewable. together, the treaty - enshrined foundations of the monetary union combine the ecb ’ s independence with clear, democratic legitimation. price stability is in the acknowledged, very best long - term interests of the people. stable prices benefit society as a whole, rather than serving individual interests. price stability guarantees the purchasing power of income and the value of savings. it prevents arbitrary redistribution and fosters employment and growth. only when prices are stable is the price mechanism – the key tool for managing supply and demand in a market economy – transparent and efficient. these findings also have a strong tradition within german economic science. walter eucken ( 1952 ), one of the spiritual fathers of what is known as “ ordnungspolitik ” and the social market economy, rightly described price stability – as he put it at the time, the “ primacy of foreign exchange policy ” – as one of the constitutive principles of a competitive order. he envisioned a “ monetary constitution with a stabilis