Does the Monetary Policy Channel Impact the Transmission of Exchange Rate Depreciation Shocks to Inflation?

  • Eliphas Ndou
  • Nombulelo Gumata
  • Mthokozisi Mncedisi Tshuma


We estimate counterfactual VAR models to determine the role of repo rate channel in the transmission of exchange rate depreciation shocks to consumer price inflation. Evidence shows the consumer price inflation rises to exchange rate depreciation shocks irrespective of whether policy rate is shutoff or not in the model. This suggests the policy rate channel dampens the increase in consumer price inflation following the exchange rate depreciation shocks. The policy rate channel’s weakening of the exchange rate pass-through to consumer price inflation is independent of inflation regimes, which supports a credible policy conduct. Evidence indicates, in the high inflation regimes, the monetary reaction to consumer price inflation is amplified by ERPT channel.


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Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
  • Nombulelo Gumata
    • 2
  • Mthokozisi Mncedisi Tshuma
    • 3
  1. 1.South African Reserve BankPretoriaSouth Africa
  2. 2.PretoriaSouth Africa
  3. 3.National Planning Commission SecretariatPretoriaSouth Africa

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