was marked by further enquiry into monetary policy frameworks. the early 2000s saw our biggest policy shift, the adoption of the inflation - targeting framework. at the time, south africa was the 13th country to introduce this policy framework. the governor at the time, tito mboweni, was tasked with guiding the sarb through this uncharted territory. our inflation target, set by the minister of finance in consultation with the sarb, is between 3 % and 6 %. the adoption of inflation targeting saw a radical change in the way in which the sarb communicated with the public, focusing on transparency through communication, and ensuring that independence and accountability worked hand in hand. the flexibility of the inflation - targeting framework and its anchoring of public expectations about inflation assisted the country to weather the global financial crisis in 2008 and 2009. with the critical role of financial institutions in that crisis underscored, governor gill marcus helped expand the sarb ’ s mandate to explicitly include financial stability. in doing so, a financial stability committee was formed and resources expanded for its work. the early 2010s also saw cabinet approve the move towards the twin peaks model. the financial sector regulation act was signed into law on 21 august 2017, paving the way for the formation of the prudential authority. in april 2018, the prudential authority was officially launched, amalgamating the sarb ’ s bank supervision department, the insurance division of the financial services board and the supervisory team of the co - operative banks development agency. the sarb was born at a time when the world was exiting the devastating impact of the 1918 spanish flu pandemic. as we approached our centenary year, the world began grappling with the great flu pandemic of our time, the coronavirus disease 2019 ( covid - 19 ) pandemic. as covid19 cases began to rise, south africa, like many other countries, mandated forceful containment measures to abate the human cost associated with the virus. while these measures minimised the impact on human lives, they came at a great cost to the economy. south africa ’ s real gross domestic product contracted by a substantial 7. 0 % in 2020. this was the second - largest annual contraction since 1920, and about five times larger than the contraction following the global financial crisis in 2009. unemployment recorded its highest level since statistics south africa began measuring unemployment. both headline producer and consumer price inflation recorded historic annual average lows of 2. 5 % and

that takes account of long - delayed effects. a reliable system for forecasting future inflation therefore becomes an essential precondition for any monetary policy model based on inflation targeting. to what extent should inflation targeting be concerned with asset price inflation? it is well - known that the board of governors of the federal reserve system in the united states of america is always concerned about the dangers of financial and property asset price inflation, and of the risk of a “ bursting bubble ”. the experience of japan in the late 1980 ’ s can be quoted, where measured consumer price inflation never exceeded 4 per cent per annum, and yet excessive increases in bank credit extension and the money supply created unrealistic asset prices. eventually, when the bubble burst, the total japanese economy collapsed. 4. conclusion it is mainly for these reasons that many countries still prefer to stick to a more controllable intermediate target such as m3 or dce, rather than the more complex and difficult inflation targets. south africa ’ s expressed intentions to move towards inflation targeting therefore need careful preparation. the reserve bank is in the process of improving its techniques of forecasting inflation, and continues to analyse the changing relationships that are now emerging in the new situation between the various components of the monetary policy model. reference should, in conclusion, be made to a third alternative in addition to intermediate targets, such as the money supply and inflation targeting, that can also be considered by countries as an anchor for monetary policy, and that is explicit targeting of the exchange rate of the currency. countries such as argentina, hong kong and the people ’ s republic of china have opted for this alternative with a reasonable measure of success. there are, however, many reasons why this option is not regarded as appropriate for the present south african situation. suffice it to say that, in the macroeconomic monetary policy model used by the reserve bank, the exchange rate is included as an important element in the comprehensive model, but it comes out as a result of the policy process, and not as an independent objective.