Forecasting Monetary Policy Rates in the COVID-19 Era for South Africa

It is of great importance to find accurate forecasts of monetary policy rates for economies to make better decisions for future performance of the overall economy and trading issues. For a proper decision-making process, regulatory authorities need to consider forecasting as one of the most important elements. This chapter aims to determine which forecast monetary policy rates such as bank lending, exchange and inflation rates could be considered during the COVID-19 pandemic in South Africa. The chapter adopted univariate and multivariate modelling as a way to accomplish as many accurate forecasts as possible. Findings from the forecast modelling link the chosen monetary policy rates with ways that the economy can come back to normal through the transmission mechanism of monetary policy. Inflation rate portrayed the best forecast indicating that South Africa needs to maintain the adopted inflation rate between 3 and 6 %. The bank rate as an instrument used by policymakers to influence the whole economy including inflation indicated best forecasts for the future movements of the economy in the post-COVID-19 era. As South Africa has an open economy trading globally, the foreign exchange rate showed that paying attention to it can give good forecasts for the future performance of the economy. It is thus recommended that South African policymakers closely monitor these monetary policy rates as their changes determine some major economic consequences during the pandemic.