or only to look at non - imported inflation and to ignore the rest. this strategy is complex because first and foremost it is not clear how much the imported inflation rate will be going forward, which is not under the control of the central bank. in addition, an upward revision risks bringing a loss of credibility and of being interpreted as a change in strategy. moreover, a higher inflation objective implies an increase in inflation expectations, and thus of long - term interest rates, which must sooner or later be accompanied by an increase in short - term rates. finally, if the inflation rate objective is increased it will not be easy to convince national market participants not to include this increase in their behaviour, including in wage demands. in a situation of high unemployment, this risk is limited, but gradually as the economic recovery gets under way the risk of second - round effects increases. alternatively, the central bank may decide to maintain the inflation objective unchanged at 2 % ( or less ). in this case, since the contribution of imported inflation is 1. 2 %, this means that domestic products must not increase by more than 1 % per year. in other words, to be consistent with inflation at 2 %, core inflation, or excluding food and energy, should be 1 %. how do you get this result? by focusing monetary policy on domestic inflation of 1 %. this can be accomplished through a moderation in costs and prices by producers. this does not necessarily mean a loss of purchasing power, if productivity increases at a pace comparable with imported inflation. however, if this does not happen, the only way of ensuring price stability is to restrict the purchasing power of wages. this requires that price increases for imported goods do not feed into wages and domestic prices. the numbers i have used are of course by way of illustration and should not be related to the current ones. the point i want to make is that if the growth gap continues between the developed and emerging markets, inflation imported from the latter cannot be ignored. normally, higher inflation in the rest of the world should be compensated for by an exchange rate appreciation of the domestic currency vis - a - vis the rest of the world. but this only happens in the case of countries with comparable economic structures. in this case, however, the exchange rates of the advanced countries tend to fall compared with those of emerging countries, because of higher productivity growth in the latter group. these two effects, higher external inflation and depreciation, accumulate and lead to a loss in the

such as credit extension and core inflation. therefore, the'higher for longer'story for south africa is not about delayed transmission or markets misreading our intentions. secondly, the financial stability consideration has not played a big part in our thinking. no doubt, if there was a way to achieve our target that involves less stress on the system – households, firms and government – we would prefer that. but we have a resilient financial sector. liquidations and insolvencies have been limited. there are some pockets of stress, and households are certainly feeling the squeeze, but we are not like advanced economies where rates are suddenly radically higher than they used to be. we are 200 basis point above where we were before covid - 19 struck – by contrast, both the us and the euro area have seen changes that are double that, about 400 basis points. furthermore, having not had zero interest rates in south africa, no one got used to treating debt like it was nearly free. importantly, we also have a range of tools, beyond interest rates, to look after financial stability. overall, we feel we can be resolute in using interest rates to stabilise inflation, without feeling hobbled by trade - offs between our mandates. nonetheless, even if you cannot copy and paste the rationales from other economies to south africa, there still seems to be a good case for keeping rates'higher for longer'domestically. to anchor that claim with a number, in the 2010s, the repo rate averaged just over 6 %. it seems unlikely we will be going back to those kinds of average rates over the next few years. let me address the why. the starting point is the global story. as discussed, the era of ultra - low inflation rates and ultra - loose monetary policies in the advanced economies seems to be over. where once global financial conditions were loose and it was relatively easy to attract foreign money, nowadays even the very safe and liquid assets generate attractive real returns. this means investors are no longer searching the world for a bit of extra yield ; instead, it is the borrowers who must put in extra effort. 4 / 7 bis - central bankers'speeches south africa is one of those borrowers. on top of that, our domestic policy settings are also calibrated to push up rates. this is not a statement about monetary policy ; it is a statement about the environment in which we make monetary policy. consider the following. firstly, fundamentally, interest rates