Isolating a measure of inflation expectations for the South African financial market using forward interest rates
Stellenbosch Working Paper Series No. WP09/2009Publication date: 2009
Author(s):
The inflation expectations channel of the transmission mechanism is generally recognised as crucial for the implementation of modern monetary policy. This paper briefly reviews the practices commonly employed for measuring inflation expectations in South Africa and offers an additional method, which is market based. The methodologies of Nelson and Siegel (1987) and Svensson (1994) are applied to determine implied nominal and real forward interest rates. The difference between the nominal and real forward rates (called inflation compensation) on a particular day is then used as a proxy for the market’s inflation expectations. This measure should not be viewed as a substitute for other measures of inflation expectations, but should rather supplement these in order to offer an additional insight.
JEL Classification:E43, E44, E52, E58
Keywords:South Africa, Inflation expectations, Monetary policy transmission mechanism, Implied forward rates, Term structure of interest rates
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Upcoming Seminars
Monday 28 July 202512:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
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Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
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Professor Johan Fourie: Stellenbosch University
Topic: "Economic History: TBC"
BER Weekly
25 Jul 2025 Budget hurdle cleared, but US tariff implementation remains a riskIt was another big week on the local political front, but with some constructive momentum. On the trade front, ahead of next week’s 1 August deadline, Trump announced another “massive” trade deal with Japan. The upcoming week is busy, with a slew of global and domestic data releases and several monetary policy decisions, including the SARB....
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