PRESS STATEMENT
19 September 2024

STATEMENT OF THE MONETARY POLICY COMMITTEE

Issued by Lesetja Kganyago, Governor of the South African Reserve Bank
As we move towards the end of the year, global inflation is slowing and nearing
targets.1 Given these gains, major central banks have lowered rates. We saw the
European Central Bank cut again last week, the Bank of England eased in August,
and the US Federal Reserve reduced rates last night. The US dollar has also cooled
off in recent months, providing some respite for other currencies, including the rand.
Despite these welcome developments, central banks are moving carefully, and policy
stances remain relatively tight. Economic activity in major economies has been
resilient, even as inflation eases. Underlying measures of inflation have also fallen
less than headline, primarily because of elevated housing inflation, and robust wage
growth.
The case for caution is further bolstered by the difficult and unpredictable geopolitical
environment, with risks of inflationary shocks through trade restrictions and supply
chain disruptions, among other factors.
Overall, global conditions have become more favourable, but there are still risks. A
‘soft landing’ is looking more likely, after the worst inflation surge in a generation, but
it is not inevitable. The financial market volatility of early August was a reminder of
the fragilities and uncertainties in the system.

1 For instance, headline inflation for August was 2.2%, in both the Euro area and the UK, and 2.5% for
the United States, all against targets of 2%.

For these reasons, central banks are approaching the endgame with caution.
Turning to South Africa, output was marginally below our expectations for the first
half of the year.2 We expect improvements in the second half, with growth of 0.6% in
both quarters.3 This reflects rising confidence, in part due to a stable electricity
supply. We also expect extra spending given withdrawals from the new Two-Pot
retirement system, although some of these funds will be absorbed by debt
repayments and tax.
For the medium term, our growth projections have once again edged higher. The
upgraded forecast is premised on better-functioning network industries, especially
electricity, alongside broader reform momentum.4 Because potential growth is higher,
in the forecast, supply and demand remain broadly balanced, even as growth
accelerates. The pace of growth nonetheless remains below longer-run averages, of
around 2%.
A particular concern is investment, which has been contracting for four consecutive
quarters. A stronger investment performance is a pre-requisite for sustained higher
growth, and although we continue to expect an investment recovery, its scale and
speed will be a key indicator of South Africa’s longer-run economic prospects.
The risks to the growth outlook are assessed as balanced.
Moving to inflation, headline eased to 4.4% in August, a 3-year low, and close to the
middle of our target range. Our forecast suggests this progress will be sustained,
with inflation contained below the 4.5% midpoint of our range through to the end of
the forecast horizon, in 2026.
In the near term, we continue to see a dip in headline inflation, supported by the
stronger exchange rate and lower oil prices. The implied starting point of the rand is
R18.04 to the US dollar, an appreciation of nearly 2% relative to our July

2 The July forecast anticipated growth of 0.6% in 2024Q2, versus an outcome of 0.4%. However, first
quarter growth was revised up to 0% from -0.1%, so the level of GDP was only 0.1% below our
expectations in 2024Q2.
3 This refers to the quarter-on-quarter, seasonally adjusted measure. The year-on-year rates are 1.4%
and 1.7% for 2024Q3 and 2024Q4, respectively.
4 The estimated GDP impact of loadshedding has been cut back to -0.13pp for 2024, and 0pp for
2025 and 2026. This contrasts with -0.18pp, -0.05pp and 0pp for those years, respectively, as of the
July MPC. The estimated 2023 impact is -1.5pp.

assumption.5 This contributes to fuel price deflation, which helps keep headline
below 4% through the first half of next year. As usual, we will look through this nearterm supply shock, focusing on the medium-term outlook.
Lower headline inflation also reflects a better food price outlook, with inflation for this
category below the midpoint through 2025 and 2026. However, these benefits are
partly offset by higher electricity prices, with an expected inflation rate more than
double that of headline.
For core inflation, we expect the trajectory to be slightly below 4.5% over the medium
term. Again, this is primarily due to the exchange rate, which affects core mainly
through import prices.
Services inflation, meanwhile, is expected to stabilise near the midpoint early next
year, after a stretch of prints above 4.5%. This partly reflects subdued housing
inflation, which has accelerated less than expected this year.6 Lower inflation
expectations also contribute to the improved services outlook.
According to the latest survey, these expectations are still in the top half of the target
range, at 4.8% for both 2025 and 2026.7 They are nonetheless moving – slowly – in
the right direction.8 As long as headline inflation stabilises at lower levels, we
anticipate further progress in re-anchoring expectations around the middle of our
target range.9
The risks to inflation are assessed as balanced.
Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points,
to 8% per annum, with effect from 20 September.
In discussing the stance, MPC members considered an unchanged stance, a 25-basis
point cut, and a 50-basis point cut. The MPC ultimately reached consensus on 25

5 The starting point for the July forecast was R18.35 per US dollar.
6 Housing inflation slowed unexpectedly, from 3.3% to 2.9%, in the June CPI. This item is surveyed
quarterly.
7 Market-based measures of inflation expectations have also moderated. Since the previous MPC
meeting shorter-term expectations (5 years) have declined to 4.3%, while longer term expectations
(10 years) have fallen to 5.3%.
8 Average expectations declined by 0.2pp for 2024 and 2025, and 0.1pp for 2026, in the 3rd quarter
survey.
9 The forecast projects that 2-year ahead expectations will reach 4.4% in 2026, fractionally below the
midpoint.

basis points, agreeing that a less restrictive stance was consistent with sustainably
lower inflation over the medium term.
The forecast sees rates moving towards neutral next year, stabilising slightly above
7%. As before, the rate path from the Quarterly Projection Model remains a broad
policy guide, changing from meeting to meeting. Decisions of the MPC will continue to
be data dependent, and sensitive to the balance of risks to the outlook.
There are scenarios where inflation could undershoot the baseline forecast, if oil
prices are lower or the exchange rate appreciates further. Conversely, inflation could
be higher than our baseline forecast given scenarios such as higher housing costs,
larger electricity price increases, or wage increases that outrun inflation and
productivity growth. Meanwhile, food inflation is a source of uncertainty, despite
recent improvements.
Global conditions pose additional challenges. Geopolitical risks are heightened and
could generate further economic shocks. Policy uncertainty is also elevated, in
various parts of the world. Both trade restrictions and debt levels are rising, and
might go much higher. This mix could add significant inflationary pressure to the
world economy, generating tighter financial conditions for South Africa and other
countries.
For the time being, South African assets have performed relatively well. The rand
has strengthened during the year, more than most peer currencies, while long-term
yields have moderated and spreads over US rates have narrowed.10 These moves
have reversed some of the deterioration experienced since 2020.
Given a potentially adverse external environment, however, it is crucial to sustain
domestic reform momentum. This entails both structural reforms to support growth
capacity, and macroeconomic efforts to rebuild fiscal and monetary buffers.
The MPC’s main contribution is to deliver low and stable inflation, with well-anchored
inflation expectations.

10 For instance, the yield on the R2035 bond have moved from about 11.4% at the start of 2024, to a
peak of about 12.5% in April, and subsequently down to around 10.3% as of mid-September.

We also recommend additional measures that would improve economic conditions.
These include reaching a prudent public debt level, further repairing and
strengthening network industries, lowering administered price inflation, and keeping
real wage growth in line with productivity gains.
Lesetja Kganyago
GOVERNOR

The next statement of the Monetary Policy Committee will be released on 21
November 2024.
Contact person:
Thoraya Pandy
0824168416