and which are more straightforward. with a four - two spilt in july and a three - three divide in september, it should have been reasonably clear to observers that monetary policy was not on a predetermined course. although it may be comfortable for markets to have certainty around the short - term repo rate path, the real priority for the larger economy is fostering confidence that inflation will be well behaved over the medium and long terms. to this end, we implement monetary policy through flexible inflation targeting. this provides a framework both for interpreting economic news and for communicating our policy stance to our stakeholders so that it is more predictable over time. how, then, does the outlook appear through this lens? page 6 of 9 as outlined earlier, the exchange rate and its long - term impact on price and wage determination remains the single biggest risk to inflation. in analysing these risks, we would want to look through short - term volatility and focus on the longer - term trend. this is often easier said than done, given the tendency of the rand to overshoot ( in both directions ) and the conflicting factors weighing on it. apart from the exchange rate, the main risks to the inflation outlook emanate from the supply side. the application by eskom for a 20 % tariff increase from mid - 2018 poses a significant risk. an increase of this magnitude could increase the inflation trajectory by 0. 2 - 0. 3 percentage points, relative to the current assumption of an 8 % tariff increase. the national energy regulator of south africa is currently conducting public hearings into eskom ’ s request, but at this stage we have not adjusted our assumption and will await the outcome of that determination. however, to the extent that there is an upside surprise, our reaction will be guided by the extent to which we assess the second - round effects. in general, we would not automatically react to the first - round effects of a supply - side shock. international oil prices have increased significantly since their lows of below us $ 45 per barrel in june. they are currently trading at over us $ 60 per barrel, above our current assumptions of us $ 55 and us $ 56 in the next two years. increased global demand, coupled with output restrictions by some producers, has contributed to the higher trend. the prices may, however, be ultimately capped by increased output by us shale producers, who have now become the main swing supplier in the international oil market. while we still expect a

like slower normalization in the advanced economies, that push risk towards a stronger currency. indeed, conditions in the global economy have generally played a strong role in reducing downside risk to the rand in recent years. the inflation outlook and monetary policy the outlook for the exchange rate is an important, although not the only, consideration when making monetary policy decisions. the current environment has created challenges for monetary policy, but the positive news is that inflation has moderated and has been sitting fairly comfortably within the target range for the past few months. however, the expected inflation trajectory is still higher than we would prefer, with the risks tilted to the upside. at the same time, we have to take cognisance of the growth outlook and provide whatever support we can. this is exactly what we did at the monetary policy committee ( mpc ) meeting in july. however, we must be clear about the limits of monetary policy, and what it can and cannot do. we cannot expect monetary policy to solve what are essentially structural problems in the economy. page 4 of 9 year - on - year headline cpi 5 inflation returned to within the inflation target range in april this year, having declined steadily from 6. 6 % in january. it reached a low of 4. 6 % in july before rising to 4. 8 % in august and to 5. 1 % in september, in line with our forecasts. at the september mpc meeting, the headline cpi inflation forecast was 5. 3 % for 2017 and 5. 0 % and 5. 3 % for 2018 and 2019 respectively. a lower turning point of 4. 6 % was still expected in the first quarter of 2018. the forecast for core inflation – which strips out the volatile components of food, petrol, and electricity – and which is a reflection of underlying price pressures, was 4. 8 % for 2017, rising marginally to 4. 9 % and 5. 0 % in the next two years. these forecasts are markedly lower than those from earlier in the year. we remain concerned, however, that inflation expectations, as reflected in the survey conducted by the bureau for economic research, remain anchored at the upper end of the target range. this is particularly the case for the price - setters in the economy, i. e. business and labour respondents. we would prefer to see these expectations anchored at the midpoint of the target band. inflation at this level would bring our inflation rate closer to, though still remaining somewhat above, those of