MONETARY POLICY
REVIEW
OCTOBER 2022
OCTOBER 2022
© South African Reserve Bank
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photo
copying, recording or otherwise, without fully acknowledging the Monetary Policy Review of the South African Reserve Bank as the source. The contents of this publication
are intended for general information purposes only and are not intended to serve as financial or other advice. While every precaution is taken to ensure the accuracy of
information, the South African Reserve Bank shall not be liable to any person for inaccurate information or opinions contained in this publication.
Enquiries relating to this Monetary Policy Review should be addressed to:

Head: Economic Research Department

South African Reserve Bank

P O Box 427

Pretoria 0001

Tel. +27 12 313 4416
www.resbank.co.za


ISSN: 1609-3194
Printed by the Publishing Section of the South African Reserve Bank
OCTOBER 2022
Preface
The primary mandate of the South African Reserve Bank (SARB) is to achieve and maintain price stability in the interest of
balanced and sustainable economic growth. In addition, the SARB has a complementary mandate to oversee and maintain
financial stability.
Price stability helps to protect the purchasing power and living standards of all South Africans. It provides a favourable
environment for investment and job creation, and supports international competitiveness. The goal of price stability is
quantified through an inflation target, which is set in consultation with government. The target is a range of 3–6%, which has
been in place since 2000.
The SARB has full operational independence. Monetary policy decisions are made by the SARB’s Monetary Policy Committee
(MPC), which is chaired by the Governor and includes the deputy governors and other senior officials of the SARB.
The inflation-targeting framework is flexible, meaning that policymakers will seek to look through temporary shocks, thereby
avoiding excessive volatility in interest rates and economic output. The MPC takes a forward-looking approach to account for
the time lags between policy adjustments and economic effects. MPC decisions are communicated at a press conference at
the end of each meeting, accompanied by a comprehensive statement.
The Monetary Policy Review (MPR) is published twice a year and is aimed at broadening the public’s understanding of
the objectives and conduct of monetary policy. The MPR covers domestic and international developments that affect the
monetary policy stance.
In normal circumstances, the MPR is presented by senior officials of the SARB in major centres across South Africa. However,
due to COVID-19, these presentations, except for the official launch, remain suspended.
Questions about the publication may be directed to Marlene Hugo at
OCTOBER 2022
Contents
Restoring price stability


Boxes
Statements issued by Lesetja Kganyago, Governor of the South African Reserve Bank
Statement of the Monetary Policy Committee
Statement of the Monetary Policy Committee
Statement of the Monetary Policy Committee

OCTOBER 2022
Restoring price stability
Executive summary and
overview of the policy stance
Global inflation this year reached heights last seen in the
1980s. Headline inflation in South Africa climbed to 7.6% in
August, a slight moderation from the 7.8% hit in July, and a full
1.9 percentage points above the inflation outcome of
January 2022. Domestic economic activity continues to
improve but has been volatile from flooding in April and
extensive load-shedding. The growth outlook remains modest.
Headline inflation is expected to average 6.5% in 2022, and
to remain above the midpoint of the target range into 2024.
Central banks around the world have stepped up policy
tightening to restore price stability and to re-anchor inflation
expectations. As inflation and expectations of future inflation
increased in South Africa over the period, the Monetary Policy
Committee (MPC) raised the repurchase (repo) rate by a
cumulative 200 basis points. This brings the repo rate to 6.25%
compared to the average rate of 6.64% prevailing in the year
prior to the COVID-19 pandemic. Further normalisation may be
needed to raise rates to levels that are consistent with a stable
and lower inflation rate.
In the wake of the COVID-19 pandemic and renewed
geopolitical tensions, the global economy has entered
a period of high inflation and weaker economic growth. While
the initial impetus to inflation emanated from expansionary
fiscal and monetary policies as well as demand-supply
imbalances in goods markets, inflation has since broadened
to many goods and services. Inflation in major advanced
economies has now reached levels last seen in the 1980s and
is high across emerging markets.1
After robust growth of 6.1% in 2021, global economic activity
has slowed markedly in 2022 and is expected to remain tepid
over the medium term.2 The South African Reserve Bank
(SARB) has revised its projections for global growth to 3.0%
in 2022 and 2.0% in 2023, from 3.7% and 2.8% respectively
in the April Monetary Policy Review (MPR). The downscaling
of global growth projections reflects a fading post-pandemic
bounce, disrupted trade and energy supplies as well as the
effects of higher inflation and the measures needed to contain
it. Other forecasters, including the International Monetary Fund
(IMF), have also made large downward revisions.3
1 Year-on-year consumer price inflation in the United States (US),
the eurozone and the United Kingdom (UK) in July 2022 recorded
8.5%, 8.9% and 10.1% respectively. Inflation remained contained
in Japan at 2.6% in the same month.
2 International Monetary Fund (IMF), World Economic
Outlook Update (WEO Update), July 2022.
3 The IMF forecast was revised in the July WEO Update to 3.2% in 2022
and 2.9% in 2023, from 3.6% for both 2022 and 2023 in the January
WEO Update.
Forecast
Percentage change over four quarters
Headline inflation
Sources: Stats SA and SARB

Midpoint
3–6% inflation target range
Percentage change
Global growth*

Source: SARB
Forecast

Rest of the countries

SSA

China

Japan

Eurozone

US

Global (Mar 2022)

Global (Sep 2022)
* Real GDP growth in South Africa’s major trading-partner countries

OCTOBER 2022
While inflationary pressures have been building for some
time, inflation surged in the period under review, reflecting
multiple overlapping shocks to the global economy. The most
significant of these is Russia’s invasion of Ukraine. Apart from
raising the prices of oil, food and industrial commodities, the
invasion has exacerbated COVID-19-related supply chain
disruptions.4 Meanwhile, sustained expansionary policies
have tightened labour markets, pushed up demand for goods
and accelerated the rotation of demand back to services,
particularly in the Group of Three (G3) economies.5
Although global energy and food prices have come off
recent highs and weaker economic growth could further
erode price pressures, for most of the world both the risks
to inflation and its future path remain highly uncertain.
Rising core inflation implies that food and energy price
disinflations, on their own, are unlikely to bring headline
inflation back to targets. In the absence of swift and strong
policy action, inflation could develop additional momentum
as economic actors price in more inflation.6
Advanced and emerging economy central banks have
generally responded forcefully to this test of their policy
frameworks, raising policy rates in large steps. The United
States (US) Federal Reserve (Fed) has raised the Fed funds
rate by a cumulative 300 basis points since March 2022,
at times moving in 75 basis points steps, and has begun
quantitative tightening. Meanwhile, the European Central
Bank (ECB) has hiked rates by a cumulative 125 basis points
since July 2022.7 The Bank of England (BoE) has also hiked
aggressively in recent months.8
The inflation experience of emerging markets has been varied.
Latin American economies have seen markedly stronger
inflation as food and fuel prices escalated while accommodative
policies boosted demand. This prompted central banks in
the region to increase policy rates sharply to keep inflation
expectations anchored and to eliminate the demand impetus.9
By contrast, in Asia and elsewhere, inflation was often more
4 A Carstens, ‘A story of tailwinds and headwinds: aggregate supply
and macroeconomic stabilisation’, Jackson Hole Economic Symposium,
26 August 2022.
5 These are the US, the eurozone and Japan.
6 See the Bank for International Settlements, Annual Economic
Report, 2022.
7 Unlike in the US, inflation in the eurozone is largely an energy (gas)
story. July marked the first time that the ECB hiked rates since 2011.
8 The 50 basis points hike in August 2022 was the largest hike
by the Bank of England (BoE) in nearly 30 years.
9 Brazil, for instance, raised its policy rate to 13.75% in August 2022
from a low of 2.0% in February 2021. Meanwhile, inflation slowed
to 8.7% in August from 10.1% in July.
G3 core inflation

Source: Haver

US

Eurozone

Japan

-4
-2

Percentage change over 12 months
Policy rates in major advanced economies

Source: Haver

Per cent

US

UK

Eurozone

Japan
Percentage change
BRICS headline inflation
Source: Haver
Brazil
Oct 2021–Aug 2022
Russia
India
China
South Africa

Headline CPI inflation

Inflation target

OCTOBER 2022
muted, with less pronounced swings in aggregate demand and
consumption patterns. As a result, policy rates have generally
been lower and more stable. A few countries, including South
Africa, occupy a middle space, having had a slow rise in
inflation early in the recovery but then an acceleration in recent
months as inflationary pressures became more acute and risks
deteriorated.
Across most economies, the pace of policy normalisation has
ramped up faster than was expected only last year. This reflects
both the ‘surprise’ persistence of inflation and the resolve by
central banks to restore price stability.
High inflation presents potentially severe challenges to the
fabric of societies, both in the short and in the long run. The
disproportionate reduction in the purchasing power of poorer
households and those dependent on fixed incomes gives
rise to rapidly widening income inequality.10 Rising inflation
also distorts resource allocations and undermines productive
activities, degrading growth prospects, investment and jobs.
As inflation increases, so do inflation risk premiums, raising
long-term borrowing costs and further adversely impacting
on investment.11 If persistently elevated inflation is not brought
under control within a reasonable time frame, inflation
expectations de-anchor and result in a prolonged period of
higher interest rates. In that case, the overall economic cost
of eventually getting back to lower and stable inflation rates
can rise sharply, well beyond short-run costs. Guiding inflation
back towards the target sooner reduces the risk that high
inflation gets entrenched.
The domestic economic recovery
and outlook
The South African economy continued its slow and gradual
recovery from the pandemic in 2022, with real gross domestic
product (GDP) increasing to around its pre-pandemic level.
Since January, the economy has expanded by 1.4%. However,
on a quarterly basis, GDP has been volatile, increasing by
1.7% in the first quarter and decreasing by 0.7% in the second
quarter. While the strong first-quarter outcome lifted output
beyond that of 2019, the second-quarter contraction lowered
it below 2019 levels again.

Policy support to the economy has generally been
10 C Loewald and K Makrelov, ‘The impact of inflation on the poor’,
South African Reserve Bank Occasional Bulletin of Economic Notes
No. OBEN/20/01, Pretoria: South African Reserve Bank, June 2020.
11 R J Barro, ‘Inflation and economic growth’, Annals of Economics
and Finance 14(1), 2013, pp 121–144.
R billions (constant 2015 prices)*
2019 level

Sources: Stats SA and SARB
Real GDP level

* Seasonally adjusted
Percentage change over four quarters

Real GDP growth*
* The bands around the central projection show confidence intervals
of 10%, 30%, 50% and 70%.
This chart shows seasonally adjusted data, as used in the QPM.
Sources: Stats SA and SARB


OCTOBER 2022
extensive, with real interest rates at negative levels and
public spending levels high.12 Commodity export prices
have provided a significant positive demand shock to the
economy since the early months of the COVID-19 pandemic
in 2020. However, global conditions have been more mixed
in recent months, in particular as high global prices have
filtered through to domestic prices. Commodity export
prices eased from the highs reached in the wake of Russia’s
invasion of Ukraine, while import prices continue to rise.
With a sharp spike in global financial volatility and still unclear
domestic growth prospects, the rand depreciated sharply
since the start of June 2022, weakening by 10.5% against the
US dollar.
Across the various meetings of the MPC, forecasts of GDP
growth for the year ranged between 1.7% and 2.0%. This
deceleration from the nearly 5% reached in 2021 represents a
return towards the trend growth rate, shaped in large part by
insufficient supply of energy. In line with this lower trend growth
and growing demand, the economy is forecast to expand by
1.4% in 2023 and by 1.7% in 2024, below the projection of
1.9% for both years at the time of the last MPR.
Monetary policy is in part shaped by how the balance between
potential growth and aggregate demand contributes to inflation.
South Africa’s demand trajectory has proven to be relatively
buoyant.13 Alongside robust net exports, both household
spending and investment have been stronger than expected
and employment levels higher. Looking ahead, employment
should benefit further from the rotation of demand back to
the more labour-intensive services sectors such as transport,
tourism and hospitality.
Growth in disposable income, better employment levels and
social transfers have supported growth in household spending
through the recovery and this year so far. After rising by 5.6%
in 2021, household spending is expected to moderate to 3.2%
in 2022 and to 1.8% in 2023 as growth slows and inflation
erodes real purchasing power.14
While forecasts for gross fixed capital formation rose over the
12 Public spending increased to 32.1% of GDP in the 2020/21
financial year, from 29.7% of GDP in the 2019/20 cycle.
13 Nominal GDP grew by 5.7% and gross domestic expenditure
by 9.7% during the first half of 2022.
14 After expanding by a downwardly revised 1.2% (previously 1.4%)
in the first quarter of 2022, household consumption slowed to 0.6%
in the second quarter.
R trillions (constant 2015 prices, quarterly)

Actual and potential GDP*
Sources: Stats SA and SARB
* Dotted lines indicate forecasts

Actual

Potential

GDP and consumption expenditure
by households*
Source: Stats SA


Percentage change**

HCE

GDP
* Seasonally adjusted
** Quarter to quarter

OCTOBER 2022
period under review, investment growth has come almost
entirely from stronger-than-expected private investment. Public
sector investment remains weak. Looking ahead, the recently
announced energy reforms should prompt increased private
and public investment in electricity generation.
South Africa’s current account balance unexpectedly plunged
into a deficit of 1.3% of GDP in the second quarter of 2022,
ending seven uninterrupted quarters of surpluses that began in
the third quarter of 2020. While this deficit came as a surprise,
as dividend payments increased sharply, it is in line with the
underlying trend for the current account back towards a deficit
– a function of rising domestic spending (and investment) and
declining commodity export price gains.
The terms of trade improvement, which started well before the
pandemic and was accelerated by it, has generally supported
the rand and helped subdue inflationary pressures. As the
global economy cooled in recent months and commodity
prices further corrected, currency weakness reemerged,
exposing the vulnerabilities South Africa faces in financing the
domestic economy.
Alongside the current account, the public sector was an
additional beneficiary of the post-pandemic recovery as the
strong terms of trade boosted tax revenues and the revenue
base broadened. Government spending grew by 5.5% in
2021/22 and by 1.1% in the first four months of the 2022/23
fiscal year. Despite some easing of financing conditions early
in the year, ongoing spending pressures, higher risk aversion
and inflation have tightened financing conditions, contributing
to persistently high long-term borrowing costs.15
15 The 10-year bond yields have increased to about 10.8% in recent months.

Trade balance

Services, income

and transfers balance

Current account balance


Percentage of GDP
Current account

Source: SARB
Forecast
R billions

Apr–Jul 2021/22

Apr–Jul 2022/23
Public finances

Expenditure
Revenue
Source: National Treasury

OCTOBER 2022
Through much of the post-pandemic recovery, South Africa
exhibited a modest climb in headline inflation. Even as externally
determined prices (oil and food) pulled the overall headline
inflation rate up, core prices generally dragged the rate lower in
response to a stronger rand exchange rate, low unit labour cost
(ULC) growth and muted demand-side pressures. The SARB’s
inflation forecast, in turn, depended on energy and food price
inflation easing and core inflation rising only gradually. Over
the course of the past year and the last six months especially,
global energy and food prices continued to rise strongly, while
various components of core inflation increased more rapidly
than expected. In more recent weeks, global energy and food
prices disinflated significantly, as measured by the Brent crude
oil price and the United Nations (UN) Food and Agricultural
Organization (FAO) food price index respectively.
Inflation ramped up markedly since the release of the April 2022
MPR, surging to 7.8% in July before moderating slightly to 7.6%
in August, providing a serious test to South Africa’s supposed
‘inflation exceptionalism’. Headline inflation is expected to peak
in the third quarter of 2022 at 7.4% against the previous MPR’s
expectation of 6.2% in the second quarter of 2022.
Core inflation is forecast to average 4.3% in 2022, accelerating
to 5.4% in 2023 before easing to 4.8% in 2024. Headline inflation
is projected to average 6.5% in 2022 and to decline closer to
the midpoint of the target range by the middle of 2023.
Overview of the policy stance
Over the three meetings covered in this edition of the MPR
(May, July and September), the MPC raised the repo rate by
a cumulative 200 basis points, bringing the nominal repo rate
to 6.25%. The pace of tightening reflected higher inflation
and inflation expectations than had been expected and the
need for the real repo rate level to be more consistent with a
stable inflation rate at the target. With higher global economic
volatility and a steadily closing output gap, the risk profile for
inflation was consistently seen to be to the upside.
The upside risk profile for inflation reflected the continued
monthly surprise outcomes of higher headline inflation, as well
as increases in both core inflation and evidence of secondround effects.16 These effects were seen in spillovers from
energy prices to core goods prices (discussed in Box 2), in
final producer prices, and in surveyed expectations of future
inflation. Nominal wage demands increasingly reflected
contemporaneous inflation outcomes, suggesting some
de-anchoring from the 4.5% midpoint of the inflation
target range.
16 The Stats SA trimmed mean measure of underlying inflation
unambiguously shows that pressures have intensified, having risen from
an average of 3.8% in 2021 to an average of 4.9% in the year to date.
Percentage change over four quarters

Actual

Mar 2022

Sep 2022
Headline inflation forecasts for each quarter of 2022

Q1
Q2
Q3
Q4
Sources: Stats SA and SARB

Inflation expectations:

two years ahead

Inflation expectations:

five years ahead

Average level of wage settlements
Per cent
Wage settlements and inflation expectations

Sources: Andrew Levy and BER

Per cent

Repo rate

Source: SARB

OCTOBER 2022
The May 2022 meeting of the MPC was held against the
backdrop of the devastating floods in April, worsening loadshedding as well as the intensifying war in Ukraine. Global
growth was revised lower and G3 inflation up. GDP growth
for South Africa in the second quarter was revised lower to
0.0%, from 0.6% in March. The near-term forecast of headline
inflation at the time remained close to the upper limit of the
target range while core inflation, although averaging only 3.9%
in 2022, was expected to rise sharply and to exceed headline
inflation from 2023 onwards. Both food and fuel inflation were
seen decelerating markedly due to base effects and the easing
of supply constraints globally.17 Services inflation was forecast
to exceed the midpoint of the target range in 2023 and to
remain above it over the medium term.
Headline inflation was forecast to rise to 5.9% in 2022 (5.8% in
March) and to remain above the midpoint of the target range over
the medium term.18 Compared to the March repo profile, the QPM
suggested an additional 25 basis points policy rate hike in the
second quarter to total 50 basis points. With inflation becoming
more broad-based and risks tilted to the upside, the MPC agreed
unanimously to raise the repo rate by 50 basis points to 4.75%.
Economic data releases preceding the July meeting of the MPC
painted a mixed picture of the outlook for growth and inflation.
Economic activity had recovered to pre-pandemic levels by
the first quarter of 2022, but the economy was projected to
contract sharply (by 1.1%) in the second quarter. Meanwhile,
headline inflation breached the upper limit of the target range
in May, rising to 6.5%, and forward projections showed it
rising to 7.3% in June and July before moderating. Alongside
currency depreciation, other risks to the inflation outlook, such
as increased food and fuel prices, had largely materialised,
pushing up projected ULC growth and expectations of future
inflation.19, 20 Core inflation was forecast higher at 4.3% in 2022
(from 3.9% in May), rising to 5.6% in 2023 (from 5.1%) before
moderating somewhat to 4.9% (from 4.8%). With upward
pressure from both core and non-core inflation, headline
inflation was revised higher to 6.5% in 2022 (from 5.9%) and
up to 5.7% in 2023 (from 5.0%), and forecast at 4.7% in 2024,
unchanged from the May meeting.21
17 Core inflation was projected lower at 3.9% in 2022 (from 4.2% in March),
5.1% in 2023 (from 5.0%) and 4.8% in 2024 (from 4.7%). The downward
revision to core inflation in 2022 was largely due to the lower outturn
for medical insurance during the first quarter of the year.
18 Headline inflation was projected at 4.9% in 2023 and 4.7% in 2024.
19 Fuel price inflation was revised up to 38.9% in 2022 (from 31.2%)
and to 4.5% in 2023 (from -0.3%). Food price inflation was revised
higher to 7.4% in 2022 (from 6.6%) and to 6.2% in 2023 (from 5.6%),
but remained unchanged at 4.2% for 2024.
20 The Bureau for Economic Research (BER) average surveyed expectations
of future inflation in the second quarter of 2022 reached 5.6% for 2023
(from 5.0%) and 5.4% for 2024 (from 5.0%).
21 The QPM forecast for headline inflation takes into account the policy rate
trajectory endogenously generated by the model.
Percentage change over four quarters

Targeted inflation forecast*

* The bands around the central projection show confidence intervals
of 10%, 30%, 50% and 70%.
Sources: Stats SA and SARB
3–6% inflation target range

Midpoint

Per cent

Real and neutral repo rates*
Source: SARB
* Dotted lines indicate forecasts
** Real repo is nominal repo deflated
using one quarter ahead inflation
-3
-2
-1

Neutral rate

Real rate**
Per cent
Headline broadness

Sources: Stats SA and SARB

OCTOBER 2022
Meanwhile, economic growth continued to slow globally,
even as inflation surprised further to the upside. The SARB’s
estimate for inflation in the G3 economies was revised higher
to 6.9% in 2022 (from 6.3% in May) and up to 3.0% in 2023
(from 2.7%) but remained unchanged at 2.0% in 2024. Global
financial conditions were seen tightening as higher-thanexpected inflation pushed global central banks to accelerate
the normalisation of policy rates.
Against this backdrop, the MPC decided to raise the repo rate
by 75 basis points to 5.50%, with three members expressing a
preference for the announced increase, one member preferring
a 100 basis points increase and another member preferring a
50 basis points increase.
At the September meeting of the MPC, the headline inflation
forecast was unchanged at 6.5% in 2022 but revised lower
to 5.3% in 2023 (5.7% in July) and 4.6% in 2024 (4.7%). The
trajectory for core inflation was forecast to moderate slightly
compared to the July meeting. The near-term inflation print
eased somewhat from the 7.8% reached in July to 7.6%
in August, reflecting moderating global food and oil price
inflation, as well as lower electricity price inflation. Inflation
expectations and wage increases turned out marginally better
than expected, although the overall outcome was mixed.
The rand, however, was expected to weaken further over the
forecast horizon, in part due to declining terms of trade and
rising global interest rates.
Domestic growth was revised slightly lower for 2022 due to
persistent load-shedding. Meanwhile, household consumption
remained relatively strong, helped by moderating food and
fuel prices, still accommodative real interest rates, and
improvement in employment. Investment was expected to
grow by 7.4% in 2022 but to slow somewhat in 2023 before
being buoyed by the announced energy reforms, rising from
3.9% in 2023 to 5.5% in 2024. Net exports were expected to
remain under pressure mainly due to slower global growth and
idiosyncratic domestic factors.
The QPM’s implied policy rate path suggested a 25 basis
points increase in the fourth quarter and another 25 basis
points increase in the first quarter of 2023, following the
75 basis points increase at the July meeting. Although
fuel price inflation had eased and global food prices were
somewhat lower, the MPC noted that upside risks remained
elevated. As a result, the MPC raised the repo rate by
75 basis points, bringing it to 6.25%. Three members
expressed a preference for the announced rate increase
while two members preferred a 100 basis points increase.
Risks to the inflation outlook have consistently been seen to
be on the upside over the review period.

Percentage change over four quarters
Headline inflation*

Sources: Stats SA and SARB

Actual

May 2022

Jul 2022

Sep 2022
* Dotted lines indicate forecasts
Midpoint
3–6% inflation target range

Electricity

Fuel

Food and non-alcoholic beverages

Core inflation

Headline inflation*
-2

Percentage points
Contributions to headline inflation

Sources: Stats SA and SARB
* Percentage change over 12 months
Evolution of repo rate forecasts*

Actual

May 2022

Jul 2022

Sep 2022
* Dotted lines indicate forecasts

Per cent
Source: SARB

OCTOBER 2022
Although rates have increased at every meeting of the MPC
since the lift-off in November 2021, the steps have been
incremental and smaller than in peer economies, and the
hiking cycle has been shallower than in many other economies.
An early start to repo rate normalisation has supported a more
balanced recovery, while commodity price strength and a
more appreciated rand have helped keep the effects of high
global inflation at bay.
Conclusion
While inflation expectations were well anchored for much of the
period, in recent months South Africa’s ‘inflation exceptionalism’
has been severely challenged. The monetary policy stance has
been adjusted over time to better address those challenges,
looking to anchor inflation expectations more strongly to 4.5%
over the medium term. With higher inflation and closing of the
output gap, continuing the strongly expansionary policy stance
of recent years is both unnecessary and imprudent, risking
additional de-anchoring of inflation expectations. Normalisation
of the repo rate to date has helped to address that challenge.
Sustainable economic growth requires both the attainment of
low inflation and structural reforms that enhance investment
and productivity, and thus trend growth, such as providing
sufficient energy for growth and further de-risking the economy
by stabilising public debt. Energy reforms are in motion, with
tangible commitments expressed by potential investors.
Speedy and judicious implementation could see investment
rising markedly over the medium term, although the effects on
trend growth may only begin to manifest towards the end of
the forecast period.
Basis points
Emerging market policy rates*
Sources: Haver and SARB
* Changes since Oct 2021
Hungary
Chile
Colombia
Poland
Brazil
Peru
Mexico
South Africa
India
Malaysia
Indonesia
Thailand
Russia
China
Türkiye


1 000
1 200

OCTOBER 2022
Box 1 South Africa’s sacrifice ratio

See C Loewald, K Makrelov and E Pirozhkova, ‘The short-term costs of reducing trend inflation in
South Africa’, South African Reserve Bank Working Paper Series No. WP/22/08, Pretoria:
South African Reserve Bank, August 2022.

‘What determines the sacrifice ratio?’, in Monetary Policy, edited by G Mankiw, 1994.
Chicago: University of Chicago Press.

The approach identifies disinflation episodes as periods when trend inflation falls by more than
2 percentage points per year. The accumulated output losses over the disinflation episodes are calculated
as the sum of deviations of actual from trend output.

See also Box 2 in the April 2021 MPR.

S G Cecchetti and R W Rich, ‘Structural estimates of the US sacrifice ratio’, Journal of Business
and Economic Statistics 19(4), 2001, pp 416–427.

The approach estimates the sacrifice ratio by identifying unanticipated monetary policy shocks
in a simple structural autoregressive model.

H Y Gereziher and N Y Nuru, ‘Structural estimates of the South African sacrifice ratio’, World Institute
for Development Economics Research Working Paper No. 2021/12, Helsinki: United Nations University
World Institute for Development Economics Research, January 2021.

R I M Torres, ‘Inflation targeting in emerging economies: a comparative sacrifice ratio analysis’, Dynamic
models and their applications in emerging markets, edited by S Motamen-Samadian, 2005, pp 77–108.

A Coco and N Viegi, ‘The monetary policy of the South African Reserve Bank: stance, communication
and credibility’, South African Reserve Bank Working Paper Series No. WP/20/06, Pretoria:
South African Reserve Bank, June 2020.
10 A N Kabundi and M M Mlachila, ‘Monetary policy credibility and exchange rate pass-through in South
Africa’, South African Reserve Bank Working Paper Series No. WP/18/04, Pretoria: South African
Reserve Bank, August 2018.
11 M B Reid and P L Siklos, ‘How firms and experts view the Phillips curve evidence from individual and
aggregate data from South Africa’, South African Reserve Bank Working Paper Series No. WP/21/03,
Pretoria: South African Reserve Bank, March 2021.
12 See C Loewald, K Makrelov and E Pirozhkova, ibid.
13 See, for example, J de Gregorio, ‘The effects of inflation on economic growth: lessons from Latin
America’, European Economic Review 36(2–3), 1992, pp 417–425.
The public debate about monetary policy often focuses on the short-term transition costs of
moving from one inflation rate to another lower one, a measure known as the ‘sacrifice ratio.’
Many estimates of sacrifice ratios, however, are small, and empirically are insignificant relative
to the size of medium and long-run benefits of lower inflation.
Recent estimates1 of the sacrifice ratio for South Africa using the approach developed by
L Ball2, 3 show a negative outcome over the 2016–2019 period, suggesting little or no output
losses even as inflation eased significantly.4 Other approaches show similar results. The
Cecchetti and Rich5, 6 method reveals a low sacrifice ratio of around 0.5 over the entire post1994 period – similar to other recent estimates for South Africa.7 A low sacrifice ratio implies
that the short-run costs of achieving permanently lower inflation rates are small and even at
times positive.
One of the benefits of adopting credible and effective inflation-targeting frameworks is
generally understood to be smaller sacrifice ratios.8 In South Africa’s case, central bank
communication has improved significantly over the past decade, heightening credibility
and helping to lower relatively inflexible administered price inflation.9 Exchange rate passthrough, which is a function of credibility and communications, has also declined, and
inflation expectations have become more forward-looking, reducing inflation inertia and
contributing to the decline in the sacrifice ratio.10, 11, 12
South Africa’s inflation target range and the associated 4.5% midpoint of the range remain
high relative to peer emerging markets, most of which have a point target of around 3% with
a tolerance of 1% around the target. This difference in target presents an unambiguous cost
to the economy over time, foregoing more predictability of returns to investment and savings
as well as clearer relative price signals that support economic growth.13

OCTOBER 2022
Global economy – stagflation?
The growth outlook for the world economy has been
downgraded further since the previous MPR as high and
persistent inflation coupled with tightening financial conditions
and geopolitical tensions weigh on global supply and demand.
After a slow start to monetary tightening, and amid intensifying
core inflationary pressures, central banks have raised policy
rates more aggressively to prevent a de-anchoring of inflation
expectations. Higher inflation and interest rates increase
the risks for many economies – developing, emerging and
advanced – with higher debt levels post-COVID-19.
Following the sharp rebound in global growth in 2021, the IMF
now expects global real GDP growth to slow to 3.2% this year.22
Meanwhile, global inflation is expected to be sharply higher,
revised up to 6.6% for advanced economies and to 9.5% for
emerging market and developing economies, compared to the
3.8% and 5.8% respectively expected at the start of the year.
The emergence of this stagflationary environment reflects two
broad dynamics in the world economy: a major expansion
in aggregate demand and a wide range of serious supply
constraints. These have generated large shocks to the prices
of food, energy and goods, and have created space for price
increases of other goods, services and other input costs, like
wages, in reaction. The sharp appreciation in the US dollar,
partly reflecting the anticipated faster pace of rate increases
in the US relative to most other advanced economies, has
contributed to a deterioration in inflation prospects for most
countries. Compounding this has been a string of other
negative developments, including the ongoing war in Ukraine
and slowing growth in the Chinese economy. Beyond 2022,
global growth is likely to slow further, as central banks and
fiscal authorities act to prevent even more damage to the
global economy from a further increase in inflation.
Growth in advanced economies is forecast to slow to around
2.5% in 2022, 1.4 percentage points lower than was forecast in
the IMF’s January 2022 World Economic Outlook Update (WEO
Update), dampened by declining household purchasing power
and tighter financial conditions in most large economies. In the
US, lower consumer spending and weakness in the housing
sector could drag real GDP growth to 2.3% in 2022 compared
to the 4.0% projected in the January 2022 WEO Update.
The eurozone is now estimated to grow by 2.6% in 2022,
1.3 percentage points lower than the January 2022 projection.
A recession is expected in the second half of the year as
the region is heavily impacted by the war in Ukraine and as
financial conditions tighten further. Meanwhile, the Japanese
economy finally managed to return to its pre-pandemic trend
22 The IMF’s projection for global growth in 2022 has been lowered
by 1.2 percentage points between the January and July updates
of the World Economic Outlook (WEO).
Per cent of central banks tightening/easing

Global central bank policy changes*

Sources: Haver and SARB

Tightening

Easing
* Sample includes 42 central banks
Percentage change

Mar
Jan
May
Jul
Sep
Global real GDP growth and inflation
forecasts (2022)
Source: Bloomberg

CPI inflation

Real GDP

OCTOBER 2022
in the third quarter of 2022, with real GDP growth forecast to
reach 1.7% in 2022. In the United Kingdom (UK), consumption
has weakened markedly as soaring inflation and higher interest
rates erode real disposable income.
Some advanced economies could prove more resilient despite
slowing growth, as consumer and corporate balance sheets
remain healthy. Cash and bank deposits held by households,
as a share of disposable income, are well above the averages
of the past decade and reflect the still unspent transfers
that households received during the COVID-19 pandemic.23
Similarly, profitability has been healthy in the past year and
interest burdens low, which helped with corporate debt
consolidation. As a result, non-financial businesses entered
the current slowdown with relatively healthy financial positions.
Weaker growth prospects in the emerging world mainly reflect
the marked slowdown in China and the sharp contraction
in Russia, although most emerging regions show subdued
growth.24 Chinese economic activity is expected to rebound
in the second half of 2022 following a sharp slowdown in
the first half on the back of strict COVID-19 lockdowns and
turmoil in the property sector. However, some early signs,
in particular disappointing retail sales data, suggest that the
rebound is more subdued – a view that appears to find support
in the surprise interest rate cut by the People’s Bank of China
in August 2022. The outlook for China remains clouded by
renewed COVID-19 outbreaks and a further deterioration of
the country’s property sector. Real GDP growth in China is
expected to average 3.3% in 2022, well below government’s
5.5% growth target for the year. Following its invasion of
Ukraine, Russia’s economy is expected to contract by 6.0%
this year, down from a projected 2.8% growth in January, as
the war, trade and financial sanctions as well as oil and gas
embargoes by major economies take their toll.
Seemingly bucking the trend for larger emerging markets,
the Indian economy is expected to expand by 7.4% this year.
This projection, however, is 1.6 percentage points lower
than the January forecast, and is subject to downside risks
related to weaker domestic demand and lower net exports.
Contrary to the brighter prospects in India, economies across
Latin America will experience more subdued growth, weighed
down by higher inflation and tightening financial conditions. In
Brazil, real GDP growth is projected at 1.7% in 2022.25 Growth
in sub-Saharan Africa (SSA) is expected to average 3.8% in
2022, reflecting the favourable effects of elevated energy
and metals prices for commodity-exporting countries.26
The region, however, remains vulnerable to slowdowns in
global growth, particularly slower growth in China, and
tightening global financial conditions.
23 Data from the major central banks – including the Fed, the
Bundesbank, Banque de France and the BoE – show similar trends.
24 These growth projections are taken from various editions of the IMF’s
WEO for 2022.
25 While low, this is an improvement relative to the 0.4% forecast
in January 2022.
26 Excluding Nigeria and South Africa, SSA is expected to expand
by 4.6% in 2022.
Percentage change
Real GDP growth projections
for advanced economies*
Sources: IMF and SARB
-12
-8
-4

US
UK
Euro area
Japan
2019–2023
* Dotted lines indicate forecasts

Pre-COVID-19 GDP growth average (2010–2019)
Percentage change
Real GDP growth projections for selected
emerging markets*
Sources: IMF and SARB
2019–2023
Brazil
China
India
Russia
* Dotted lines indicate forecasts

Pre-COVID-19 GDP growth average (2010–2019)
-10
-5

OCTOBER 2022
Monetary policy tightening
in full swing
Faced with persistently high global inflation, a ‘global’ monetary
policy tightening cycle is underway. Central banks have reduced
monetary accommodation, with both the frequency and the
magnitude of hikes initially exceeding market expectations.
Some central banks have also begun to reduce the size of their
balance sheets, tightening financial conditions further. Market
expectations of future policy rate hikes have been revised
higher in recent quarters, consistent with central banks’
communicated intent to bring inflation lower sooner. Among
the emerging markets, Brazil has been an outlier, with sharply
higher rate expectations, reflecting persistent and widespread
inflationary pressures throughout the economy. The Brazilian
central bank has undertaken the biggest rate-hiking cycle
among emerging market economies.
Despite the aggressive increases in policy rates, monetary
policy remains generally accommodative, suggesting that
central banks could do more. For advanced economies, ex
post real rates remain in negative territory. Assuming that
inflation forecasts materialise as expected, ex ante real rates
(based on inflation projections for the fourth quarter of 2023)
are now more or less in line with pre-pandemic averages.
For emerging markets, ex post real rates have shifted closer
to post-global financial crisis (GFC) averages but still remain
below ex ante rates. On a forward-looking basis, monetary
policy across emerging markets appears to be more in line
with long-run averages.
However, comparing ex ante real rates to averages of the past
decade may be misleading, as many advanced economies
had a ‘low inflation problem’ in the post-GFC period, prompting
central banks to keep real rates below neutral. At present, with
inflation extremely high and persistent, most central banks
need to raise real rates to at least the neutral real level, and
probably higher. Complicating this is the possibility that the
level of neutral real rates may have shifted in the post-pandemic
period (see Box 2 in the April 2022 MPR).
Per cent

Mar
May
Jul
Sep
Advanced economy rate expectations (end 2022)
Source: Bloomberg

US

UK

Eurozone

Jan

Per cent

Oct
Emerging market rate expectations (end 2022)
Source: Bloomberg

Brazil

Mexico

South Africa

India

Jan
Apr
Jul

Oct
Jan
Apr
Jul

-10
-5

Per cent
Real policy rates
Sources: Bloomberg, Haver and SARB
Advanced
economies
Emerging markets
US
Japan
Eurozone
UK
South Africa
China
India
Indonesia
Brazil
Chile
Mexico
Poland
Russia

Ex post

Ex ante

Post-GFC average (2010–2019)

OCTOBER 2022
Peaking inflation?
Major forecasters27 see a peak in global inflation in 2022.
Headline inflation, however, remains elevated and above
target in most economies, owing to still-high price increases
for food and energy, supply constraints, tight labour markets
(particularly in advanced economies) as well as a rebalancing
of demand back towards services.
Over the medium term, inflation is expected to move lower and
to return closer to central bank targets, although uncertainty
around inflation forecasts remains elevated. Three factors
should contribute to a declining inflation trajectory: falling
commodity prices, easing supply constraints and monetary
policy tightening. Futures prices for Brent crude oil as well as
wheat and corn prices suggest some moderation in prices
over the medium term.28 The lower commodity price trajectory
is premised mainly on lower demand as the global economy
weakens and as higher prices temper consumption.
After rising sharply through the second half of 2020 and most
of 2021, supply chain pressures also appear to be easing. For
instance, container shipping costs from China to the rest of the
world have trended lower while global supplier delivery times
are improving. At the same time, the disinflationary effects of
monetary policy should weigh on price developments through
this year and over the medium term, subduing demand.
Meanwhile, inflation expectations have begun levelling off,
suggesting confidence that central banks will prevail in taming
rampant inflation.
Debt overhang
Many economies sharply increased fiscal spending during the
COVID-19 pandemic to strengthen their health-care systems
and to ameliorate the impact of lockdowns on households,
corporates and the economy overall. In the process they
accumulated large amounts of debt, often at very low interest
rates. Global government debt reached 99.2% as a share of
world GDP in 2020 from 83.6% in 2019.29 While government
debt eased somewhat to 97.6% in 2021, it remains at elevated
levels. Rising global interest rates and tightening financial
conditions will push up debt-service costs and could lead to
increased debt sustainability challenges and possibly debt
27 Organisation for Economic Co-operation and Development
(OECD), Economic Outlook 2022, Paris: OECD June 2022.
28 However, much uncertainty remains over the outlook for global natural
gas supplies in 2022 and 2023.
29 International Monetary Fund (IMF), Fiscal Monitor: Fiscal Policy
from Pandemic to War, Washington, D.C.: IMF, April 2022.
-2

Percentage change over 12 months
Advanced economy inflation*
Sources: Bloomberg, Haver and SARB

UK

Eurozone

US

G3 mean

Japan
* Dotted lines indicate quarterly forecasts

Russia

Brazil

South Africa

India

China
-5

Percentage change over 12 months
Emerging market inflation*
Sources: Bloomberg, Haver and SARB

* Dotted lines indicate quarterly forecasts
US dollar per barrel
US cents per bushel

Food and oil prices*

Wheat (rhs)

Brent crude oil

Corn (rhs)
Source: Bloomberg
* Dotted lines indicate futures prices

1 000
1 100
1 200

OCTOBER 2022
distress for some economies.30 These problems are more
acute for emerging market and developing economies with
large macroeconomic imbalances, as they could also face
balance of payments challenges and weakening currencies in
a risk-off environment, further pushing up inflation.
Heightened stagflationary risks
With global inflation sharply higher and global growth weaker,
stagflation has emerged as a global condition. Several risks
could worsen the outlook even further. One such risk would be
central banks not doing enough to increase the credibility of their
inflation targets and thereby prevent inflation expectations from
drifting higher. Stagflation could further deepen if disruptions
to energy supplies persist, keeping oil and other energy-related
prices elevated for longer even in an environment of slowing
energy demand. Overall, failure to bring inflation under control
in a reasonable time frame would jeopardise global growth
over the medium to long term.
30 Around 60% of low-income countries are now at risk of, or already in, debt
distress, compared to about 30% in 2015. IMF Fiscal Monitor, April 2022.

Percentage of GDP
Global government debt

Source: IMF

Advanced economies

Emerging markets

World
Forecast

Box 2 How and why second-round effects matter

Despite central banks hiking policy rates aggressively, real
interest rates have remained negative in most economies
as inflation has continued to surprise to the upside.
Despite most of the inflationary pressures over the past year
emanating from sharp increases in food and energy prices, central
banks in both advanced and emerging market economies have
accelerated the normalisation of policy rates. The pace of policy
rate hikes has mirrored the degree to which headline inflation
has risen above targets, reflecting concern about second round
effects and the high economic costs of re-anchoring inflation
expectations should they be allowed to drift.1 This box discusses
how and why second-round effects matter for monetary policy.
Second-round effects refer to the extent to which food and
energy price inflation (also known as non-core inflation) drives
up headline inflation and then embeds into core inflation.
Econometrically, second-round effects can be assessed by
considering whether headline inflation reverts to core inflation
and whether core inflation reverts to headline inflation. For
instance: if non-core inflation rises and drives headline inflation
higher, and above core inflation, today, but then headline
inflation falls lower to the trend of core inflation, there are no
second-round effects (the non-core price shock dissipates
quickly without affecting the trajectory for core inflation). But
if, instead, a few months down the line core inflation rises to
catch up with the trajectory for headline inflation, then secondround effects are present. In the latter case, the non-core price
shock is persistent and eventually influences the dynamics of
core inflation.

Percentage change over four quarters
South Africa’s headline and core inflation

Sources: Stats SA and SARB

Core

Headline
Forecast
Midpoint of inflation
target range

OCTOBER 2022
Various econometric studies have concluded that in emerging
market and developing economies, including South Africa,
shocks to food and energy prices tend to persist.2 This is because
food and energy have a disproportionately large weight in the
consumption basket of a typical household in these economies,
and often do not have close substitutes. As a result, movements
in food and/or energy prices have large effects on households’
cost of living. For this reason, sharp increases in food or energy
prices lift total inflation expectations higher and elicit higher
wage demands as workers push to restore real consumption
levels.3 The resulting wage pressures can potentially start a
wage-price spiral: higher wages translate into higher production
costs for firms which then increase selling prices. Higher selling
prices of goods (and services), in turn, lead workers to demand
further raises in salaries, and so on. Relatedly, sharp increases
in energy (electricity or fuel) prices imply higher supply costs
for goods, which may require firms to sell at higher prices to
maintain profit margins. However, when demand is more elastic
or less strong, firms may prefer to compress margins rather
than pass higher costs to consumers.
The fact that sharply higher food and energy price inflation,
if not responded to, can transmit to core inflation and thus
lead to permanently higher headline inflation largely explains
the current policy tightening by most central banks. Ignoring
second-round effects in the calibration of monetary policy
amounts to a policy error with potentially long-lasting negative
economic repercussions.

See S G Cecchetti and R Moessner, ‘Commodity prices and inflation
dynamics’, Bank for International Settlements Quarterly Review,
December 2008; R Anand, D Ding and V Tulin, ‘Food inflation in India:
the role for monetary policy’, International Monetary Fund (IMF) Working
Paper No. WP/14/178, Washington, D.C.: IMF, September 2014.

See J de Gregorio, ‘Commodity prices, monetary policy, and inflation’,
IMF Economic Review 60(4), Washington, D.C.: IMF, 2012, pp 600–633;
L Rangasamy and E Nel, ‘Reconsidering the role of food prices in South
African headline inflation’, Agrekon 53(4), 2014, pp 16–37; G Peersman
and I van Robays, ‘Oil and the euro area economy’, Economic Policy
24(60), 2009, pp 603–651; F U Ruch, ‘Second-round effects on
inflation, and underlying inflation’, PhD dissertation, Stellenbosch
University, 2016; C Chisadza, J Dlamini, R Gupta and M Modise, ‘The
impact of oil shocks on the South African economy’, Energy Sources,
Part B: Economics, Planning, and Policy 11(8), 2016, pp 739–745.

Per cent
Policy rates in selected emerging markets

Source: Bloomberg

Brazil

Mexico

Poland

India

Forecast

Food

Headline
Percentage change over 12 months

Headline and food inflation in South Africa
Source: Stats SA

OCTOBER 2022
Financial markets
Global financial market conditions have tightened sharply over
the past six months. In response to higher inflation, major
central banks have raised rates and started to shrink their
balance sheets. This has pushed up global risk-free rates. While
some emerging markets have been severely strained by these
conditions, most have been resilient. In South Africa, there
has been a clear increase in volatility, but the overall market
adjustment to a more uncertain, potentially stagflationary
global environment has been orderly. Operationally, the
SARB completed its transition to a new monetary policy
implementation framework during this period.
Global financial markets
Central bank tightening has been the foremost determinant
of financial market conditions over the past six months. The
Fed began raising rates in March and has so far increased the
Fed Funds Rate by 300 basis points. The BoE has raised rates
by 215 basis points, having started somewhat earlier than
the Fed with a 15 basis points increase in December 2021.
The ECB has, to date, raised rates by 125 basis points.
The balance sheets of these institutions have also begun to
contract again. Amongst the major advanced economy central
banks, only Japan, with persistently subdued inflation, still has
negative interest rates and an expanding balance sheet.
Advanced economy tightening cycles still have some way
to go. Fed funds futures suggest over 100 basis points in
additional hikes in the US, taking the peak rate to around 4.3%
by early 2023. The Fed’s own ‘dot plot’ projections suggest a
rate of 4.4% by the end of 2022, rising to 4.9% in 2023. Current
market prices indicate the ECB will raise rates to about 1.7% by
December 2022 and 2.9% in 2023. Meanwhile, in the UK, the
September sell-off pushed market expectations for Bank Rate
to 4.8% by year’s end, rising to nearly 6% in 2023.
One major consequence of the Fed’s relatively aggressive
tightening cycle has been a stronger dollar. The US dollar index
has appreciated by almost 9.9% since the April 2022 MPR,
with year-to-date gains of nearly 18.3%, putting the dollar at
its strongest levels in over two decades. Initially, dollar strength
came mostly at the expense of other advanced economy
currencies rather than those of emerging markets. For instance,
by the end of May 2022, the broad MSCI Emerging Markets
(EM) Foreign Exchange (FX) index was nearly unchanged from
its April levels, while the Japanese yen had lost over 10.0%, the
euro 5.0% and the pound sterling over 6.0%. Emerging market
currencies have also depreciated against the dollar in recent
months, however, given further increases in US rates as well
as lower commodity prices. At the same time, only a limited
Per cent

Nov
Dec
Feb
Mar
May
Jun
Sep
Market expectations for US policy rates


Aug 2022

Sep 2022
Source: Bloomberg

Index

Mar
May
Jul
Sep
US dollar exchange rate
Source: Bloomberg

Jan
Index: 3 Jan 2022 = 100
Aug
Sep

Advanced economy and emerging market
exchange rates against the US dollar
Sources: Bloomberg and SARB

Jan
Feb
Mar
Apr
May
Jun
Jul

MSCI EM CI

Euro

Pound sterling

Japanese yen

OCTOBER 2022
number of countries with idiosyncratic vulnerabilities (such
as Argentina and Türkiye31) had simultaneously depreciated
against the euro.
As short-term rates have risen in advanced economies, both
equity and bond markets have registered losses. The US
S&P 500, for example, has lost 22.5% for the year to date, while
the Euro Stoxx 50 has lost 22.2%. The government bond
prices for these sovereigns have also fallen significantly
(moving inversely to yields). Yield curves have inverted in
various jurisdictions, including the US and the UK, with 2-year
rates above 10-year rates, contrary to the typical pattern of
an upward-sloping curve. This reflects expectations that shortterm rates will be temporarily above their longer-run norms,
consistent with tighter policy stances to achieve disinflation. In
the eurozone, meanwhile, spreads between the bond yields of
the so-called ‘core’ and ‘peripheral’ sovereigns have risen to
their widest levels since the onset of the COVID-19 pandemic.
Among emerging markets, tighter global financial conditions
have triggered crises in only a small number of cases to date.
The most prominent example has been Sri Lanka, which
defaulted on its external debt in May 2022. Vulnerability is
also elevated in Argentina, Pakistan and Türkiye, and Ghana
has recently approached the IMF to pre-empt a more serious
financial dislocation. Many other emerging markets, however,
have demonstrated resilience, supported in part by rate-hiking
cycles that started before those in advanced economies.
China has been a prominent exception to the higher-inflation
trend, with the People’s Bank of China easing policy instead
in the context of weaker growth.
Domestic financial markets
South Africa has joined the broad global trends of lower asset
prices and higher short-term rates. The rand has weakened
in line with other emerging market currencies, depreciating
by 10.5% against the US dollar since the start of June 2022.
The sovereign yield curve has shifted up over the past
six months, with short rates moving more than long rates –
consistent with a SARB hiking cycle. Analyst expectations, as
reflected in surveys, show the repo rate rising to 6.50% by yearend and reaching a terminal rate of 6.75% in early 2023. Market
expectations from forward rate agreements are moderately
higher, currently pricing in a terminal rate modestly over 7.0%.
Local stocks have weakened over the past six months, with
the All-Share Index (Alsi) down 14.89% year to date (or 9.65%
in dollar terms). Volatility has also picked up markedly during
the year, although it has remained below 2020 averages.
31 The Republic of Türkiye changed its official name from the Republic of
Turkey on 26 May 2022 in a request submitted to the United Nations.
Index: 6 Jan 2017 = 100
US equity and bond markets

Source: Bloomberg
S&P 500
10-year US bond yields

MSCI South Africa

MSCI EM

MSCI China


Index: 3 Jan 2022 = 100

Mar
May
Jul
Sep
Equity market performance
Source: Bloomberg

Jan
Per cent
Years to maturity

South African bond market yield curve

Jun 2022

Jul 2022

Aug 2022
Source: Bloomberg

OCTOBER 2022
South African stocks have nonetheless performed better than
the broad emerging market average. The best-performing
component of the Alsi has been the oil, coal and gas subindex,
which has benefitted from the higher energy prices related to
the war in Ukraine.
According to JSE Limited (JSE) settled trade data, there has
been net selling of local assets by non-resident investors this
year, with equities experiencing more sustained outflows than
bonds. The proportion of South African bonds owned by
non-residents has fallen further, down almost 1.1 percentage
points for the year to date, to 27.3%.32
Monetary policy operations
The main operational development in recent months has
been the transition to a new monetary policy implementation
framework (MPIF). Between 8 June 2022 and 24 August 2022,
the SARB moved from a money market shortage of around
R30 billion to a surplus of approximately R50 billion. At the
same time, banks were provided with quotas, allowing them to
earn the policy rate on overnight deposits of excess reserves.
The new system, formally a ‘tiered floor’ framework, is now
fully operational.
The money market surplus was mainly created through
maturing FX swaps and moving Corporation for Public
Deposits (CPD) funds33 back to the market. These operations
effectively unwound the draining activities initiated in 2020.
The outstanding swap balance at the start of the transition was
R34 billion, which fell to zero by the end of August.34 Over the
same time frame, CPD balances at the SARB declined from
R71.8 billion to around R30 billion. Debenture issuance also
ceased early in the transition, with the value of debentures
outstanding moving from a modest R1.1 billion at the end of
May to zero in early July.
While repo auctions are not central to the new framework,
as they were in the shortage system, they continue to be
held weekly. Their uptake by banks declined steadily through
the transition, and none of the auctions to date have been
fully allotted. This indicates an ample supply of liquidity in
the market.
On the whole, the transition proceeded smoothly, as
indicated both by feedback from market participants and by
the behaviour of relevant interest rate benchmarks. Interbank
market functioning has since improved, with usage of the
32 This figure peaked at 41.7% in 2017 and was at 34.0% before the onset
of the COVID-19 pandemic and the loss of South Africa’s last
investment-grade credit rating.
33 These are public sector balances managed by the SARB.
34 Maturing swaps have added dollars to South Africa’s gross FX reserves
while moving rands to banks.
R billions
Jun

Jul
Aug
MPIF transition liquidity target*
Source: SARB
* Shortage until 20 Jul 2022
Start of
transition


Liquidity target

Actual liquidity position

-20

R billions
SARB draining tools

Source: SARB
CPD balance
FX swaps
SARB debentures
R billions
Repo auctions in 2022
Source: SARB
18 May
25 May
1 Jun
8 Jun
15 Jun
22 Jun
29 Jun
6 Jul
13 Jul
20 Jul
27 Jul
3 Aug
10 Aug
17 Aug
24 Aug
31 Aug
7 Sep
14 Sep
21 Sep
28 Sep
Pretransition
Posttransition

1st month
2nd month
3rd month

Repo offering

Uptake

OCTOBER 2022
penalty-rate standing deposit facility moderating to R3 billion
during the transition period, and to R2.4 billion subsequently,
from levels of around R5 billion previously. Roughly 95%
of excess liquidity is finding its way to quotas at the end of
each day. The distribution of penalty-rate deposits has also
shifted. Since the start of the reform, penalty-rate deposits
have come almost exclusively from medium-sized banks,
whereas previously small banks were frequent users of this
facility and big banks were also occasional depositors.
The MPIF transition coincided with an interest rate hiking cycle
by the MPC, and markets duly priced in higher short-term rates.
There was no evidence of this necessary adjustment being
impaired by the MPIF reform. The elimination of the forward
book also appears to have supported the normalisation of
rates in the forward market, which generally traded in line with
pre-COVID-19 averages through the transition and have traded
close to repo subsequently.35
35 To read more about the distortions in this market over the past two
years, see Box 5 of the April 2021 MPR.
R billions

SF loans, +100 basis points

SF deposits, -100 basis points
Banks’ use of standing facilities

reform
Onset
Mar–Dec

Transition
New
MPIF
Source: SARB
Pre-COVID
Jan–Feb

-3
-2
-1


Range (2015–2019)

2015–2019 (average)

Basis points
FX-implied rate spread to the repo rate*
-100

Source: Bloomberg
Trading days
* Overnight to 1 week

OCTOBER 2022
Macroprudential measures are also often advocated for minimising
the costs of capital inflows. In South Africa, however, capital
flows and credit cycles are not strongly correlated, reducing the
justifications normally used for capital control measures. There is
little reliance by domestic banks on foreign funding and low levels
of cross-border bank loans.7 Foreign investment allowances and
the holdings of foreign assets for and by resident investors also
significantly reduce the probability of sustained capital outflows.8
The study uses a large macroeconometric model to capture
the interactions between fiscal, monetary and macroprudential
policies. The model reflects the strong links between the real
economy and financial conditions.9 It assesses the impact on gross
domestic product (GDP), real house prices, lending spreads and
total credit extension in response to higher capital inflows under
three different scenarios:
-
monetary policy is countercyclical to the financial cycle;
-
monetary policy and fiscal policy are countercyclical to the
financial cycle; and
-
monetary policy is countercyclical and fiscal policy is procyclical
in relation to the financial cycle, which in turn requires
macroprudential interventions.

J-F Mercier, ‘Capital inflows and domestic credit: the South African
“exception”’, South African Reserve Bank Economic Note Series
No. 2018/29, Pretoria: South African Reserve Bank, July 2018.

A Smith, ‘Dodging sudden stops’, South African Reserve
Bank Occasional Bulletin of Economic Notes No. OBEN/19/01,
Pretoria: South African Reserve Bank, July 2019. https://
www.resbank.co.za/content/dam/sarb/publications/
occasional-bulletin-of-economic-notes/2019/9343/04OBEN1901--Dodging-Sudden-Stops July-2019.pdf

A Kabundi and A Mbelu, ‘Estimating a time-varying financial conditions
index for South Africa’, Empirical Economics 60(4), 2021, pp 1817–1844.
Box 3 Leaning against the wind with monetary
and fiscal policy

C M Reinhart and K S Rogoff, ‘The aftermath of financial crises’,
American Economic Review 99(2), 2009, pp 466–472.

C Loewald, ‘Macro works: applying integrated policy frameworks
to South Africa’, South African Reserve Bank Working Paper
Series No. WP/21/10, Pretoria: South African Reserve Bank,
June 2021.
publications/working-papers/2021/WP%202110.pdf

S de Jager, C Loewald, K Makrelov and X Sibande, ‘Leaning
against the wind with fiscal and monetary policy’, South African
Reserve Bank Working Paper Series No. WP/22/12, Pretoria: South
African Reserve Bank, September 2022.
co.za/content/dam/sarb/publications/working-papers/2022/
leaning-against-the-wind-with-fiscal-and-monetary-policy

H Mehran, ‘Why financial regulations might fail to produce their desired
outcome: the case of the capital conservation buffer’ Promarket,
Stigler Center for the Study of the Economy and the State blog,
9 February 2022.
financial-crisis-regulation-capital-conservation-buffer-banks/

P Mnguni, M Rapapali and W Simbanegavi, ‘Weathering the COVID-19
storm: the response of macro-prudential policy’, South African Reserve
Bank Occasional Bulletin of Economic Notes No. OBEN/20/02, Pretoria:
South African Reserve Bank, November 2020.

occasional-bulletin-of-economic-notes/2020/10411/
OBEN%202002%20(Weathering%20the%20Covid-19%20
storm%20The%20response%20of%20macroprudential%20policy)%20-%20November%202020.pdf

T Janse van Rensburg, S de Jager and K Makrelov, ‘Fiscal multipliers
in South Africa after the global financial crisis’, South African Journal
of Economic and Management Sciences 25(1), 2022, pp 1–13.
The global financial crisis showed that when inflation is low,
monetary policy settings may be constrained from preventing the
build-up of large financial imbalances.1 Since then, policy efforts,
guided by the Basel Committee on Banking Supervision, have
focused on developing macroprudential tools and guidelines to
deal with systemic financial risks. Financial imbalances, however,
can be caused by poor coordination of fiscal, monetary or growth
policies, such as in excessive holdings of risky sovereign debt by
local banks.2 Macroprudential measures can miss these underlying
causes, imposing high costs on economic agents that are simply
responding to strong incentives created by other policies.
A recent study explores how fiscal and monetary policies can
be used to manage the financial cycle, creating space for
macroprudential policies to focus on increasing the resilience of
the financial system.3 This box presents the findings of this study.
The economic literature often recommends the application of
Tinbergen’s rule in financial cycles, addressing different policy
goals with separate instruments. In practice, this becomes difficult
where policy goals are interdependent or where the individual
and joint transmission of macroprudential instruments is not
well understood, increasing the probability of unintended policy
outcomes. Also, macroprudential measures are not always effective
in influencing the bank behaviour that drives financial cycles. For
example, loosening cyclical capital buffers may not stimulate credit
extension due to the stigma arising from their use.4 In South Africa,
reducing the liquidity coverage ratio (LCR) during the COVID-19
crisis had little impact on risk aversion, with LCRs instead rising
while credit extension remained weak.5
Macroeconomic policy itself can also be a source of financial risk,
in particular when fiscal balances deteriorate and the holdings of
sovereign debt by banks increase the exposure of the sector to
more risk.6

Sovereign exposure of the banking sector

Sovereign exposure (rhs)

1 000
R billions
Percentage of total bank assets
Bank sovereign exposure as a share of total assets

Source: SARB

OCTOBER 2022
Percentage deviation from base

GDP
Comparison of results from the different simulations


Endogenous repo rate and fiscal rule

Endogenous CAR, repo rate and procyclical fiscal rule
Percentage deviation from base
Long-term spreads
Percentage deviation from base
Real house prices
Source: De Jager, Loewald, Makrelov and Sibande (2022)
Quarters ahead
Percentage deviation from base
Total credit extention

Baseline

Endogenous repo rate
The results show that countercyclical fiscal and monetary policies
are effective in managing the financial and real economy cycle,
reducing macroeconomic volatility. If fiscal policy is procyclical,
however, a macroprudential policy response improves outcomes.
In the last scenario, the higher capital buffer (from increased
macroprudential measures) directly affects credit extension,
which slows growth in house prices and increases lending
spreads. The rest of the heavy lifting in the scenario is achieved
by a combination of a higher repurchase (repo) rate, long-term
bond yields, risk premiums (due to the increase in fiscal deficits)
and lending spreads.
Better use of monetary and fiscal policy to manage the economic
and financial cycles reduces complexity in the policy space and
has a smaller impact on borrowing costs and potential growth.
Where fiscal policy is procyclical, macroprudential policy can be
used to increase the resilience of the financial sector, but not to
manage the financial cycle – that is better left to sustainable fiscal
and monetary policies.

OCTOBER 2022
The real economy: in search
of growth drivers
South Africa’s real GDP surpassed its 2019 level in the first
quarter of 2022, signalling the completion of the recovery
from the COVID-19-induced recession of 2020. The growth
momentum has slowed sharply, however, with the economy
expected to expand by only 1.9% in 2022, following growth
of 4.9% in 2021, and to average below 1.6% over the medium
term. The subdued growth reflects the lingering effects of the
unrest in July 2021, the extensive flooding in April this year
and slowing global growth, alongside structural constraints
such as inadequate electricity supply that also depress the
economy’s potential. While multiple supply-side constraints
remain, the recently announced energy reforms could raise
private investment over the coming years, benefitting growth,
although the effects on potential growth are unlikely to be
realised over the current forecast horizon.
Recent economic developments
South Africa’s GDP surpassed its 2019 level in the first quarter
of 2022, indicating the completion of the recovery from the
COVID-19-induced recession of 2020. The economy grew
by 1.4% in the first half of 2022. The first-half performance,
however, masks the volatility of quarterly output during the
period: output grew by 1.7% quarter on quarter (revised
downwardly from 1.9%) in the first quarter, but declined by
0.7% in the second quarter.36 The strong growth in the first
quarter of 2022 lifted the economy’s total output above its 2019
level for the first time since the sharp contraction in the second
quarter of 2020. Whereas growth in the first quarter was broadbased, with all sectors (except for mining and construction)
contributing positively, only three sectors (transport, finance as
well as community, social and personal services) contributed
positively to growth in the second quarter.
The surprisingly good growth outcome in the first quarter
partly reflected the easing of lockdown restrictions, favourable
commodity export prices and improving domestic demand
underpinned by low borrowing costs. The growth momentum
was, however, derailed in the second quarter of 2022 as the
economy experienced multiple adverse shocks – including
flooding in KwaZulu-Natal in April, intensified load-shedding and
strike activity – all of which dampened economic activity and
exacerbated pre-existing challenges such as the COVID-19induced supply constraints and other operational difficulties.
Commodity export prices also begun to correct as global
demand softened amid sharply higher global inflation and
rising recessionary fears.
36 These growth outturns surprised to the upside. The SARB had expected
growth of 0.9% in the first quarter at the May MPC meeting and a
contraction of 1.1% for the second quarter at the July MPC meeting.
Reuters median forecasts were 0.8% for the first quarter
and a contraction of 0.7% for the second quarter.
-3
-2
-1

Percentage change**
Real GDP growth*

Source: Stats SA
* Seasonally adjusted
** Quarter to quarter
13.8
-17.1

Q1

Q2

Q3

Q4
Gigawatt hours
Load-shedding
Source: Eskom se Push (app)
2022*


* Year to date
Forecast
Actual and potential GDP growth
Sources: Stats SA and SARB


Percentage change over four quarters

Actual

Potential

OCTOBER 2022
The economy is expected to rebound in the third quarter,
growing by 0.4% quarter on quarter, due to base effects
accompanied by the resumption of normal economic activity
following the floods and the dropping of all remaining COVID-19
restrictions, and to moderate to 0.3% in the fourth quarter.
However, load-shedding will remain an impediment to growth
for the remainder of the year (and over the medium term),
having progressively worsened since 2018.37
Sectoral overview: a deep dive
Despite aggregate economic activity having recovered to its
pre-pandemic level, sectoral performance remains uneven.
Three subsectors – namely agriculture, finance as well as
community, social and personal services (which together
constitute just under half of the country’s GDP) – have now
exceeded their pre-COVID-19 output levels. The rest of the
subsectors show differing levels of recovery, with construction
still 24.0% below pre-pandemic activity levels in the first half
of 2022. This deficient performance points to idiosyncratic
challenges in the subsector beyond the effects of the COVID-19
pandemic, as construction’s gross value added has been
declining since 2017.
Looking at the broad sectors, the primary sector contracted
by 9.9% in the first half of the year, as both agriculture and
mining contracted across both quarters. The secondary
sector contracted by 2.0% in the first half of 2022 as the
second-quarter slump outweighed the robust performance
during the first quarter. The sharp swing in manufacturing
performance from 5.0% growth in the first quarter a decline of
5.9% in the second quarter explains much of this contraction.
Although tertiary sector activity was also disrupted by the
flooding and load-shedding during the period under review,
the sector managed to shrug this off and grew by 3.7% in the
first half of the year, underpinned by the transport and
finance subsectors.
Despite the volatility in output, the labour market has continued
its slow and gradual recovery, with over a million jobs gained
between the fourth quarter of 2021 and the second quarter of
2022, bringing employment to 95.2% of the 2019 level.38 With
employment growing relatively fast, the official unemployment
rate ticked lower to 33.9% in the second quarter of 2022 from
35.3% in the fourth quarter of 2021. While there is ample
evidence that the economy has continued to add new jobs,
37 Strike action by Eskom employees sparked dramatic escalations in
load-shedding in June, necessitating the institution of stage 6. A total
of 1 590 GWh were shed in the second quarter of 2022, up from
554 GWh in the first quarter, bringing the cumulative total for the first
half of the year to 2 144 GWh, marginally lower than the 2 264 GWh
shed in the whole of 2021.
38 Quarterly Labour Force Survey (QLFS), 2022Q2.
2022H1 as a percentage of 2019 average level
Gross value added*
* Weights in brackets
Sources: Stats SA and SARB

GDP (100.0)
Agriculture (2.5)
Finance (22.6)
Community and
social services (23.2)
Trade (12.0)
Electricity (2.4)
Manufacturing
(12.0)
Transport (7.9)
Mining (4.8)
Construction
(2.9)

Per cent
Per cent
Unemployment and labour force participation

Source: Stats SA

Labour force participation rate (rhs)

Unemployment rate

Percentage points
Contributions to GDP growth*
-3
-2
-1

2021Q1
2021Q3
2022Q1
2022Q3
Sources: Stats SA and SARB
Community and social services
Trade
Mining
GDP
Other
Finance
Manufacturing
Agriculture
Forecast
* Percentage change from quarter to quarter

OCTOBER 2022
some of the employment growth from one survey to the next
may also reflect improvements in data collection, allowing
previously ‘missing employment’ to be accounted for.39
The biggest drivers of employment growth in the first half of
the year were community and social services, trade as well
as manufacturing. Looking ahead, employment growth will
likely be driven by the more labour-intensive services sectors
as they continue to recover following the scrapping of COVID19-related restrictions and are supported by the rotation of
demand back to these sectors. Employment in community
and social services, however, is expected to decline in the
near term as major government projects which provided
temporary employment were downscaled or terminated
during the quarter.40
Consumer demand has underpinned much of the recovery,
benefitting from the improvement in employment and wages,
alongside the sharp rebound in household net wealth,
increased social transfers and lower interest rates. During the
period under review, household spending grew by 1.2% in the
first quarter of 2022 and by a more modest 0.6% in the second
quarter.41 The slowdown in household consumption spending
has been associated with a shift in spending patterns from
durable and semi-durable goods to more non-discretionary
items. Pressure on households’ real incomes and near recordlow levels of consumer confidence could further weigh on
household spending in the near term.42
During the period under review, total fixed investment rose by
3.4% in the first quarter of 2022 but slowed to 0.5% in the
second quarter. This marks three consecutive quarters of
increases in investment. The moderation in the second quarter
was likely due to the floods, electricity supply constraints
and a deterioration in global growth prospects, which have
weighed on business confidence. Throughout the recovery,
private investment repeatedly surprised to the upside,
increasing by 0.1% in 2021 and by 7.3% in the first half of
2022, providing much support to GDP growth. Considering
the subcomponents, outlays on machinery and equipment
have been the largest contributor to fixed investment growth
39 Proximate indicators of employment recovery include the GDP level,
salary payments data (Bankserv) and the recovery in personal
income tax revenues.
40 These include the enumeration operations of Census 2022 and the
employment of education assistants as part of Phase 3 of the Presidential
Employment Stimulus which came to an end in the third quarter.
41 On a year-on-year basis, household spending grew by 2.4% in the first half
of this year, lower than the 9.0% growth recorded in the first half of 2021.
42 The FNB/BER Consumer Confidence Index (CCI) plummeted from
-13 index points in the first quarter of 2022 to -25 index points in the
second quarter, but recovered somewhat to -20 index points in the
third quarter. The second-quarter confidence level reading was
the lowest in 36 years (excluding the COVID-19 period).
Percentage difference from 2019 average
* Average contribution in brackets
Household spending by durability*
Source: Stats SA


Total
(100.0)
Services
(51.0)
Durables
(9.7)
Non-durables
(30.6)
Semi-durables
(8.7)

2021 Q3

2021 Q4

2022 Q1

2022 Q2
Consumer confidence

Source: BER


Net balance

Financial position of households

during next 12 months

Rating of present time to buy durables

Economic position in South Africa during next 12 months

Total

OCTOBER 2022
in the first half of 2022.43 Despite a sharp increase in general
government fixed investment in the first quarter of 2022,
public sector fixed investment continues to struggle on the
back of underspending due to capacity constraints.44 Raising
public investment spend and efficiency could crowd in private
investment and raise the investment-to-GDP ratio closer to the
levels articulated in the National Development Plan 2030.
Growth outlook
Despite GDP contracting sharply in the second quarter, the
economy is projected to expand by 1.9% in 2022, marginally
lower than the 2.0% forecast in the April MPR. The relatively
strong annual growth is made possible by the robust growth
realised in the first quarter and the expected further recovery
in the services sector. Output growth for 2022 could have
been higher if not for the riots in July 2021 and intensified
load-shedding. The SARB estimates that load-shedding will
shave about 1.0 percentage points from growth in 2022,
which is an additional 0.4 percentage points compared to the
previous MPR.
Although domestic growth during the recovery repeatedly
surprised to the upside, it is expected to moderate markedly
over the medium term, with the economy forecast to expand by
1.4% in 2023 and by 1.7% in 2024, which is below the previous
projection of 1.9% for both years at the time of the April MPR.
Despite these downward revisions, the rate of economic
growth remains above potential, accelerating the narrowing of
the output gap, which is now forecast to close in the second
quarter of 2023, one quarter earlier than in the previous MPR,
and to rise to 0.6% in 2024.45 The low potential growth reflects
the constraining effect on productive potential of factors such
as inadequate electricity supply, logistical bottlenecks, skills
constraints, product and labour market rigidities as well as
high long-term borrowing costs.
Much of the domestic growth dynamics is explained by
household consumption expenditure, which accounts for
nearly two-thirds of GDP. Over the outlook period, household
expenditure is expected to continue to drive growth, although to
a lesser extent than during the recovery. Household spending
is likely to be supported by continued recovery in employment
and wages as well as a monetary policy stance which remains
supportive of credit demand and keeps debt-service costs
contained. However, higher inflation, lower asset prices
and rising interest rates will dampen consumer confidence
43 Machinery and other equipment contributed 2.2 percentage points in the
first quarter of 2022 and 1.2 percentage points in the second quarter.
44 Over the last three issues of the Budget Review, there has been
underspending on infrastructure of approximately R150 billion.
45 At the time of the April MPR, potential growth was estimated at 0.8%
in both 2022 and 2023 and at 1.1% in 2024, but was subsequently
revised following the extensive flooding and intensive load-shedding.
The estimates at the September MPC meeting were 0.5% for 2022
and unchanged at 0.8% and 1.1% for 2023 and 2024 respectively.
-6
-4
-2

Percentage change**
Gross fixed capital formation*

Q1
Q2
Q3
Q4

Source: Stats SA

General government

Public corporations

Private sector

Total
* Seasonally adjusted
** Quarter to quarter
Q1
Q2
Real GDP growth*
Sources: Stats SA and SARB


Percentage change

Actual

Mar 2022

Sep 2022
* Dotted lines indicate forecasts

Per cent
Evolution of output gap estimates
Source: SARB

MPC meeting dates


N
S
J
M
A
M
J
N
S
J
M
M
M
M
J
S
J
J

OCTOBER 2022
somewhat and could impair credit demand. After averaging
5.6% in 2021, growth in household consumption expenditure is
expected to moderate to 3.2% in 2022, 1.8% in 2023 and 2.0%
in 2024.
Commodity prices, though softening, should continue to
provide some impetus to growth over the medium term through
their effects on domestic asset prices, terms of trade and net
exports. Early in the recovery, the combination of record-high
commodity export prices and subdued imports led to recordhigh terms of trade of 128.9 index points by the second quarter
of 2021. However, the recent softening of commodity prices
due to slowing global growth, alongside a recovery in imports,
implies that the terms of trade, and the commodities channel
more generally, will be less supportive of domestic growth over
the medium term. While the SARB anticipates further broadbased declines in commodity prices, coal prices are expected
to remain elevated due to strong demand, moderating the
deterioration in the terms of trade.
An economy’s productive potential or long-run equilibrium
growth rate is determined by capital and labour as well as the
efficiency with which these inputs are combined in production
– so-called ‘total factor productivity’. Investment not only
affects the quality and quantity of capital; it also affects total
factor productivity and thus both realised and potential GDP.
Encouragingly, domestic investment surprised to the upside
during the recovery, which explains the upside surprises to
growth during this time. This momentum is likely to persist,
underpinned by investments in the energy sector, including the
Renewable Energy Independent Power Producer Programme
(REIPPP) and other large-scale projects.
The raising of the embedded generation threshold to
100 MW and other energy reforms have lifted the prospects
for investment markedly. New announced projects in the first
half of 202246 are valued at R267.6 billion (annualised), with
the energy sector having the lion’s share at R152 billion.47
Additional new project announcements are expected
towards the end of the year. Apart from directly adding to
total investment, investments in electricity generation and
transmission should have multiplier effects, crowding in
other private sector investment as the electricity constraint is
relaxed. While investment is expected to show up in the data
as early as next year, the SARB does not anticipate a material
rise in potential growth over the current forecast horizon (up
to 2024) given the time required to implement these projects
(see Box 4).
46 Nedbank, Capital expenditure project listing: H12022, Sandton:
Nedbank Group Economic Unit, 3 August 2022.
47 The value of announced projects has been boosted by the Green
Hydrogen Plant Project (R75 billion) led by Hive Hydrogen and Linde,
which is expected to produce a combined 2 200 MW of renewable
solar and wind energy.
Commodity prices*

Source: SARB

Index: 2015 = 100

Rand index

US$ index
* US dollar-denominated South African
export commodity price index
Forecast
2022*

R billions (current prices)
Announced capital expenditure on projects
by type of organisation
* R133.8 billion in the first half of 2022 translates to R267.6 billion
on an annualised basis.
Source: Nedbank

General government

Private sector

Public corporations

Total


Percentage change over four quarters
Real final consumption expenditure of households
Sources: Stats SA and SARB

Mar 2022

Sep 2022
Forecast

OCTOBER 2022
Macro balances
The current account and its drivers
After an uninterrupted surplus run for seven consecutive
quarters, South Africa’s current account balance plunged
into an unanticipated deficit in the second quarter of 2022 on
stronger imports and dividend payments. The trade surplus
declined markedly to 4.1% of GDP in the second quarter
of 2022, after averaging 6.5% of GDP between the second
quarter of 2020 and the first quarter of 2022, due to stronger
imports and somewhat weaker export performance.48 At the
same time, the services, income and transfers (SIT) account
deteriorated sharply on higher dividend payments, reaching a
deficit of 5.5% of GDP in the second quarter from its postGFC average of 3.4% of GDP. Together with a reduced trade
surplus, this dragged the current account into a ‘surprise’
deficit of 1.3% of GDP in the second quarter.
Although the current account surplus has been declining since
it peaked in the second quarter of 2021, a deficit was not
expected in the second quarter and is not projected to persist
into the third quarter. The large dividend payments in the second
quarter of 2022 are mostly associated with windfall profits due
to high commodity export prices. Spikes in dividend payments
occur at irregular intervals. However, the recent spike followed
the previous one much sooner than usual. Barring another large
successive dividend outflow, the SIT account should revert to
its average level from the third quarter, while the trade balance
is expected to continue to gradually decline as imports recover
and commodity prices moderate further. As a result, the current
account surplus is expected to narrow from 3.7% in 2021 to
0.3% in 2022 (3.0% in the April MPR) before reverting to a deficit
of 1.0% in 2023.
Fiscal balances
Despite the recent softening in South Africa’s commodity
export prices, fiscal revenues have remained strong. Revenue
collections increased by 9.6% year on year in the first four
months of the 2022/23 fiscal year to R510 billion after growing
by 15.0% in the final quarter of the 2021/22 fiscal year. Some tax
revenues (year to date) are still outpacing budgeted forecasts,
except for the fuel levy.49 As has been the norm through the
recovery, corporate income tax revenue increased strongly,
reflecting persistent windfall profits. On the spending side,
48 The mining surplus fell by 4.6% on the back of lower commodity
prices and effects of floods while vehicle exports contracted
by 14.1% in the second quarter (largely because of the floods)
and hence increased the trade deficit for manufacturing.
49 The temporary reduction in the general fuel levy to provide short-term
relief to households resulted in forgone government revenue
from this category.
Dividend payments

Source: SARB

Percentage of GDP
Per cent
Tax revenue (2022/23)
Sources: National Treasury and SARB
-40
-20

Total tax
revenue (gross)
Corporate
income tax
Value-added tax
Personal
income tax
Fuel levy
Other

Budget

Year to date


Percentage of GDP
Current account balance*
Source: SARB

* Dotted lines indicate forecasts

Actual

Mar 2022

May 2022

Jul 2022

Sep 2022

OCTOBER 2022
after growing by 8.8% year on year in the final quarter of the
2021/22 fiscal year, actual national government expenditure
increased by 1.1% to R628 billion in the first four months of
the 2022/23 fiscal year due to higher equitable share transfers
to provinces and debt-service costs.50 In all, this resulted in
a cash book deficit of R118 billion, which was a R37.9 billion
improvement relative to the same period last year.
While the near-term fiscal position remains stronger, consistent
with government’s fiscal consolidation programme and helped
by revenue windfalls, there are material risks to spending over
the Medium-Term Expenditure Framework, including largerthan-budgeted-for wage increases for public sector employees
and further support to state-owned enterprises. This could
potentially crowd out spending on growth enhancers such
as infrastructure or worsen the debt trajectory.51 Because
revenue windfalls will fade as commodity prices normalise,
sustainability of the fiscus requires the alignment of permanent
spending commitments to the more enduring component of
fiscal revenues.
Conclusion
The domestic economy has now fully recovered to prepandemic activity levels. With the recovery completed, growth
is expected to slow, in line with low potential growth. A myriad
of shocks, including intensified load-shedding and floods,
have detracted from growth in 2022, which is now projected
at 1.9%, slightly below the 2.0% forecast in the April MPR.
Growth over the forecast period is revised downward due to
weak global output, tightening global financial conditions and
a turnaround in commodity prices. On the domestic front,
rising domestic inflation and worsening electricity supply add
to downside pressures. While multiple supply-side constraints
remain, the proposed reforms in the energy sector will bear
fruit in the medium to longer term, relieving electricity supply
constraints and raising potential growth.
50 Debt-service costs rose by 13.3% year on year to R82.3 billion
in the first four months of the 2022/23 fiscal year.
51 National Treasury is finalising a plan to transfer a portion of Eskom’s
R396 billion debt to the sovereign balance sheet in efforts to place
the SOE on a sustainable footing in line with the ongoing restructuring
of the entity. According to the BER, the absorption of half of Eskom’s
debt could add approximately 3% of GDP to government debt.

Percentage change
Expenditure by national government
Sources: National Treasury and SARB

Deviation from originally budgeted
*
* April to July

OCTOBER 2022
Box 4 Energy reforms and economic growth

This reform initiative will be facilitated by the National Energy Crisis
Committee, which is chaired by the President and consists
of various ministerial heads.

Bid Window 5 was concluded towards the end of 2021; it consisted
of 25 renewable energy projects valued at R50 billion. It will add
2 583 MW of generation capacity.
South Africa has had persistent electricity supply shortages since
2008, which have contributed to weak investment and low growth
in the post-global financial crisis period. Supply constraints reached
a new high in the second quarter of 2022 when rolling power cuts
escalated to stage 6 (i.e. 6 000 MW shed at any given point in
time), making 2022 the worst load-shedding year on record. This
brought energy sector reforms to the fore and culminated in a
comprehensive reform package from the Presidency.1 This box
discusses the announced reforms and what these could mean for
investment and growth.
The President outlined the following five reform priorities:
1. Enhance the performance of the existing fleet of power
stations by, among other things, increasing Eskom’s budget for
critical maintenance, cutting red tape on maintenance-related
procurement and recruiting more skilled personnel.
2. Completely remove the licensing requirements for embedded
generation projects.
3. Double the amount of new generation capacity procured
through Bid Window 6 of the Renewable Energy Independent
Power Producer Programme to 5 200 MW, and speed up the
process to start construction of Bid Window 5 projects.2
4. Incentivise an increased uptake of solar installations by firms
and individuals, and develop a feed-in tariff to enable them to
sell surplus power to Eskom.
5. Expedite the restructuring of Eskom into independent
generation, transmission and distribution businesses by the
end of 2022 for more private sector inclusion and greater
competition.
The June 2021 raising of the threshold on embedded generation to
100 MW gave rise to new projects for about 6 000 MW of potential
capacity, adding to the 2 600 MW of construction-ready projects
procured through Bid Window 5. The total removal of licensing
requirements for embedded generation projects, alongside the
announced doubling of new generation capacity to be procured
through Bid Window 6 to 5 200 MW, could see further rapid
expansion of generation capacity.
Arguably, reforms 1, 4 and 5 are not new. However, they have
received substantial impetus through the focus on reducing red
tape. Notable milestones have already been achieved. First,
government has provided partial exemptions for designated local
content for solar PV panels from 100% local content to 35% for Bid
Window 5 and 50% for Bid Window 6. Second, Eskom has reached
the final stages of its land lease programme for independent
renewable energy projects, with an expected 1 800 MW of
generation capacity. Third, the National Energy Regulator of South
Africa (NERSA) registration process for renewable generation
projects has been streamlined and now averages 19 days, from
anything between 60 days to a year previously. Further reducing
the restrictions around local content requirements would lower total
investment costs and make embedded generation more attractive.
These reforms, if fully implemented, could accelerate investment
and, over time, bring an end to load-shedding, in turn boosting
economic growth. Under the proposed energy reforms, private
sector investment in the energy sector could increase total real
private investment by 10–15% per year relative to the baseline
over the 2023–2025 period.3 The South African Reserve Bank’s
core model estimates that this would raise growth by about
0.9 percentage points over the first year (2023). Investment in
energy has the potential to crowd in other productive investment,
creating a virtuous cycle.
Despite the optimism about the efficacy of these reforms, the
impact of load-shedding on potential growth for the medium term
remains unchanged at this stage. Installing new capacity takes time
and the additional capacity required to eliminate load-shedding
altogether is substantial.4
Overall, a swift and full implementation of the announced energy
sector reforms should bring resolution to South Africa’s energy crisis.
Additional efforts to reduce or eliminate red tape, including the further
lowering of local content requirements and their associated costs,
would spur investment and an uptake of embedded generation,
and spread economic gains. Much stronger and sustained growth,
however, would be enabled by similar reforms in other network
industries, including ports, rail and water.

Interest in new projects following the raising of the threshold
for embedded generation to 100 MW has risen to about
6 000 MW. This suggests that if half of these projects are
realised (about the same capacity as Bid Window 5), about
R50 billion in investment could be easily achieved.

According to Eskom, ending load-shedding would require an additional
4 000–6 000 MW of new capacity.

Megawatts
Generation capacity*

Source: TIPS
* Registered with NERSA

Percentage change from baseline (both scales)
R50 billion real private sector investment increase

Source: SARB

Real GDP (rhs)

Real private sector investment

Real total investment


OCTOBER 2022
Gross domestic product (GDP) growth forecasts, alongside those of
potential growth, help to estimate the degree of slack, or the output
gap, and thus demand pressures, in the economy. Good forecasts of
demand conditions in the economy help to determine the appropriate
level of monetary policy accommodation that should be provided to
realise inflation compatible with the target. While macroeconomic
forecasting always involves uncertainty, the COVID-19 pandemic
posed major challenges for forecasting due to extreme uncertainty
and possible parameter changes caused by structural breaks in the
data. This box evaluates the South African Reserve Bank’s (SARB)
accuracy in forecasting GDP during 2020 and 2021, focusing on
errors in Monetary Policy Committee (MPC) forecasts once the shock
became known.
GDP growth forecasts for 2020 were overstated in the first two
pandemic-period MPC meetings: March 2020 and April 2020. The
March 2020 MPC forecast occurred before any lockdown restrictions
were imposed, while the April 2020 MPC forecast only included the
initial 21 days of lockdown restrictions. As it turned out, lockdowns
were imposed for much longer, though with varying intensity. With
lockdowns extended beyond the initial 21 days, the SARB expected
the restrictive measures, which raised uncertainty and lowered
confidence, to keep growth subdued for longer. The recovery,
however, has proved stronger, resulting in forecasts for GDP growth
underestimating realised growth in all the other MPC forecasts.1 The
Reuters median also understated GDP growth in both 2020 and
2021, performing slightly worse than the SARB, particularly in 2021.

The meetings considered here begin with the May 2020 MPC
meeting, going all the way to the November 2021 MPC meeting.
Closer inspection reveals that the underestimation of growth
in 2020 and 2021 was because the SARB underestimated the
pace of recovery in exports, investment and household spending.
Exports were anticipated to recover at a much slower pace given
the weak global demand as well as supply disruptions. Similarly,
low growth, weak business confidence, heightened uncertainty and
the possibility of some businesses collapsing informed the view of a
slow recovery in investment. Household spending growth was also
understated due to expectations of a protracted loss of income
caused by lockdowns as well as weak consumer confidence.
However, actual data surprised to the upside for all three
components, reflecting a stronger global and domestic recovery.2
Meanwhile, stronger-than-anticipated domestic demand alongside
supply disruptions resulted in a larger-than-anticipated drawdown
of inventories. As a result, the change in inventories was overstated,
and this helped to moderate the underestimation of GDP growth
during the period under review.
In conclusion, the SARB’s suite of models struggled to correctly
reflect the impact of the pandemic as some relationships were
(temporarily) broken amid extreme uncertainty. This is perhaps best
illustrated by the better performance of the Quarterly Projection Model
(QPM) when staff adjusted estimates. Without such adjustments,
the forecast errors would have been larger. Therefore, a key lesson
for forecasting under extreme uncertainty is that data or information
outside of typical macroeconomic models takes on a more
significant role.

The stronger recovery in household spending was due to a sharper
rebound in wages and asset prices as well as increased social transfers.
-6
-4
-2

Percentage points
Contributions to 2020 and 2021 GDP errors (forecast-actual)
Sources: Reuters and SARB
MPC meeting dates
Apr 2020
May 2020
Jul 2020
Sep 2020
Nov 2020
Jan 2021
2020 forecast error
2021 forecast error
Overestimated
Underestimated
-6
-4
-2

Exports

Core Model

Inventories

QPM (SARB official)

Residual

Government expenditure

Imports

Household expenditure

GFCF

Reuters
Apr 2020
May 2020
Jul 2020
Sep 2020
Nov 2020
Jan 2021
Mar 2021
May 2021
Jul 2021
Sep 2021
Nov 2021
Jan 2022
Box 5
How well did the SARB forecast GDP in the COVID-19 pandemic?

OCTOBER 2022
Price developments: risks
have materialised
Domestic inflationary pressures have intensified sharply
since the previous MPR, pushing headline inflation to a
13-year high of 7.8% in July 2022, as price pressures have
broadened to the core inflation basket.52 Core goods prices
have risen markedly, reflecting both higher imported inflation
and increased pass-through from high producer prices.
Services inflation has started to climb strongly, albeit from
a low base, as the disinflationary effects from housing fade.
Spillover effects into core inflation from high food and fuel
price increases have also become evident. Projections are
for headline inflation to peak in the third quarter of 2022 and
to decelerate towards the midpoint of the target range over
the medium term supported by fading exogenous drivers.
Headline inflation is expected to average 6.5% in 2022, up
from the 5.8% projected in the April MPR.
Domestic inflation outcomes have worsened markedly over
the past six months as headline inflation has accelerated,
breaching the 6.0% upper limit of the target range in May 2022
and rising to 7.8% in July before slowing moderately to 7.6% in
August. The impact of the ongoing war in Ukraine has been felt
domestically as higher global food and Brent crude oil prices
have weighed on domestic prices more than initially expected,
with the effects accentuated by a weaker rand. Food and
fuel price inflation has averaged 7.7% and 37.7% respectively
since the start of the year. Despite the recent moderation,
Brent crude oil prices are expected to remain elevated in 2022.
The depreciation of the rand during the period under review,
alongside markedly higher global traded goods inflation, has
intensified price pressures for core goods.53 At the same time,
sharply higher producer prices have begun to feed through
into consumer prices as firms act to reduce further erosion
of margins. Services price inflation has also begun climbing
strongly in recent months, albeit from a low base, partly
reflecting the rotation of demand back to services. Meanwhile,
the shocks to food and fuel prices over the past year show
signs of pass-through into core inflation, evidenced by the
sharp rise in inflation expectations. These developments add
impetus to headline inflation, which is forecast to average 6.5%
in 2022 from 4.5% in 2021 and 3.3% in the year before.
52 Core inflation excludes volatile price items such as food and
non-alcoholic beverages (NAB), fuel and electricity.
53 Although the depreciation of the rand is more on a bilateral
(R/US$) than on a nominal effective exchange rate (NEER) basis, the
bulk of South Africa’s traded goods are invoiced in US dollars.

Percentage change over four quarters
Headline inflation and its components

Sources: Stats SA and SARB

Core

Headline

Non-core
* Dotted lines indicate forecasts
Midpoint of inflation
target range

OCTOBER 2022
Oil price developments
Oil price movements explain much of the impulse to
headline inflation over the past six months After averaging
US$89 per barrel over the period October 2021 to March 2022,
Brent crude oil prices rose to average US$110 per barrel
between April 2022 and August 2022.54 Brent crude oil prices
peaked at an average of US$123 per barrel in June 2022 due
to supply constraints as the European Union (EU) agreed
on a partial embargo on crude oil and petroleum products
from Russia – the world’s second-largest crude oil exporter.
Recently, however, oil prices have fallen, trading closer to
the US$90 per barrel mark in September, dragged lower by
global recessionary fears. In the near term, oil prices are prone
to volatility, with markets weighing expectations of weaker
demand against supply tightness. The SARB expects oil prices
to average US$105 per barrel this year.55
Over the short to medium term, structural supply-side
challenges within the crude oil industry – ranging from limited
surplus capacity in the Organization of the Petroleum Exporting
Countries (OPEC) through historically low investment to limited
refinery capacity – could persist. As a result, oil prices are
expected to remain elevated above pre-pandemic levels
over the forecast period, averaging US$92 per barrel in 2023
and US$85 per barrel in 2024 – a significant upward revision
compared to the expectations in the previous MPR, where
oil was projected to average US$80 per barrel in 2023 and
US$75 per barrel in 2024.
Administered prices
At 13.7% in 2022, regulated prices will again inflate at rates
markedly higher than the midpoint of the target range after
recording 9.2% in 2021 and averaging above 6% since 2007.56
Sharply higher fuel inflation is the main driver and overshadows
electricity price inflation for 2022/23, which came in at 7.7%.
Fuel price inflation increased by 56.2% year on year in July 2022
due to higher Brent crude oil prices, the surge in international
fuel refinery margins, higher transport costs and a depreciated
rand exchange rate. Since August, fuel prices have moderated
somewhat, with petrol prices (95 octane) falling by R3.36 per
litre, as oil prices softened.57 The effects on pump prices were,
however, tempered by the reversal of the temporary R1.50 per
54 The rise in international petroleum product prices has led to a
cumulative increase in the petrol price of R7.83 from February 2022
to July (excluding the effect of the exchange rate). However, between
August and September, a decline of R5.25 was reported.
55 Upside pressures could emanate from the ending of the
Strategic Petroleum Reserve releases and the commencement
of EU sanctions on Russian crude imports just before winter
begins in the Northern Hemisphere. On the other hand, a sharp
slowdown in global growth or a recession, higher-than-expected
production from the US or the lifting of the embargo on Iranian
oil could exert downside pressures on crude prices.
56 See Box 9 in the April 2022 MPR.
57 International refinery margins have declined somewhat since
July 2022 due to slowing global demand, softening shipping
demand and lower freight costs and other inputs.
US$ per barrel

Evolution of oil price forecasts
Source: SARB
MPC meeting dates

Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
Apr
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Rand per litre
Rand per US$

Gauteng unleaded petrol price
Sources: Bloomberg and Central Energy Fund

95 unleaded petrol

Exchange rate (rhs)

OCTOBER 2022
litre reduction in the fuel levy effected in April 2022, which was
subsequently reinstated in two equal increments of 75 cents
per litre in July 2022 and August 2022 respectively.58 Fuel price
inflation is expected to average 33.5% in 2022, from 26.1%
projected in the previous MPR, and to decelerate sharply to
1.1% in 2023 and to -1.0% in 2024 driven by base effects and
the assumed moderation in oil prices.
Electricity saw a marked deceleration in price inflation in
July 2022, from 14.0% to 7.7%, effective over the next
12 months. From an historical perspective, electricity prices
have consistently inflated at rates substantially above headline
inflation over the past two decades.59 Electricity inflation is
forecast at 10.0% in July 2023 and 10.0% in July 2024, in
line with the projections of some of the main metropolitan
municipalities’
medium-term
revenue
and
expenditure
frameworks published in annual budgets. However, these
projections contrast sharply with Eskom’s 32.7% tariff increase
application to the National Energy Regulator of South Africa
(NERSA) for the 2023/24 financial year, suggesting a large
upside risk to the forecast.60 Other administered components,
specifically property rates and water, rose by 4.3% and 8.1%
respectively in July 2022.
Because several administered price categories – including
water, electricity as well as fuel taxes and levies – serve as
inputs into production, high administered price inflation raises
the cost structure for the economy and complicates efforts to
keep inflation closer to the midpoint of the 3–6% target range.
Food prices
Over the past six months, several adverse factors have
converged to push domestic food and non-alcoholic
beverages (NAB) price inflation higher to 9.7% in July and
11.3% in August, from 6.0% in April. For the year 2022, food
and NAB inflation is projected to increase to 8.1%, up from 6.1%
at the time of the previous MPR. Among the factors pushing
domestic food prices higher is the war in Ukraine, which
has disrupted production and trade of important energy and
agricultural commodities (grains and oils) – of which Russia
and Ukraine are key exporters – exerting upward pressure on
global food prices.61 Agricultural input costs have increased
due to high crude oil and fertiliser prices. These pressures
have been worsened by a weaker rand exchange rate, with
other domestic idiosyncrasies such as the outbreak of footand-mouth disease adding to price pressures.62
58 The Demand Side Management Levy of 10 cents per litre imposed
on 95-octane petrol was permanently removed in June 2022.
59 Between 2009 and 2021 electricity prices rose fourfold while
CPI just about doubled.
60 M Illidge, ‘Eskom warns 32.66% electricity price hike might not be
enough’. Mybroadband blog, 31 July 2022.
co.za/news/energy/454745-eskom-could-ask-for-more-than32-66-tariff-increase-after-ramaphosa-speech.html
61 The UN FAO food price index increased from 19.0% in
January 2022 to 23.0% in June and remains elevated, although
it has been showing some signs of easing in recent months.
62 The rand depreciated by 7.7% between January 2022 and August 2022.
Percentage change over 12 months

2019 2020 2021 2022 2023 2024
Electricity prices*
Sources: Stats SA and SARB

Actual

Jul 2022

Sep 2022

* Dotted lines indicate forecasts

Actual

Sep 2020

Mar 2021

Sep 2021

Mar 2022

Sep 2022
Percentage change over four quarters

Food and non-alcoholic beverages inflation*

* Dotted lines indicate forecasts
Sources: Stats SA and SARB

OCTOBER 2022
Increases in domestic food and NAB inflation during the period
under review have been broad-based, but most pressure has
come from the rising prices of bread and cereals, meat, and
oils and fats. Bread and cereals inflation accelerated sharply
to 17.8% in August 2022 despite the bumper crop in 2021
and favourable domestic crop estimates in the current year.
Notwithstanding some expected moderation over the remainder
of the year in line with slowing global cereals inflation,63 domestic
bread and cereals inflation is projected to average 11.3% in
2022, substantially higher than the 3.1% projected at the time of
the previous MPR and the 3.9% outturn for 2021.
Price inflation for meat reached a high of 9.5% in June 2022
before moderating slightly to 9.4% in July and 9.2% in August.
The elevated meat inflation derives from reduced slaughtering
activity amid the foot-and-mouth disease outbreaks over the
past year extending through to the third quarter of 2022 and
sharply higher price increases for poultry. Poultry inflation
increased by 11.0% in July from 7.1% a year earlier, reflecting
rising input costs and increased import duties. The recent
suspension of anti-dumping duties on chicken imports for a
period of 12 months with effect from August 2022 should help
to soften poultry prices (see Box 6). Meat inflation is expected
to average 8.8% in 2022 (6.7% in the previous MPR).
63 Global cereals inflation moderated to 11.4% in August 2022 after
peaking at 37.3% in March.
Consumer food price inflation (September 2022 forecasts)
Percentage change over four quarters, March 2022 forecasts in brackets
Actual
Forecast
Actual
Forecast
Weight
2011–21*
2021*
2022*
2022Q1
2022Q2
2022Q3
2022Q4
2023Q1
2023Q2
Food and non-alcoholic beverages


* Annual average percentage change
Sources: Stats SA and SARB

Actual

Sep 2020

Mar 2021

Sep 2021

Mar 2022

Sep 2022
-2

Percentage change over four quarters
Meat inflation*
Sources: Stats SA and SARB

* Dotted lines indicate forecasts
-10
-6
-2

Percentage change over four quarters
Bread and cereals inflation*
Sources: Stats SA and SARB

* Dotted lines indicate forecasts

Actual

Sep 2020

Mar 2021

Sep 2021

Mar 2022

Sep 2022

OCTOBER 2022
After registering 21.2% in April 2022, domestic oils and
fats inflation surged to 37.6% in August, reflecting sharply
higher global prices due to tight supplies and a weaker rand
exchange rate.64 In August 2022, oils and fats alone contributed
0.2 percentage points to headline inflation and 1.0 percentage
points to food inflation.65 Despite the recent drop in global price
inflation for oils and fats from 58.0% in March 2022 to -1.5% in
August, benefits to South African consumers may be delayed
since changes in global prices pass through to their domestic
counterparts with a lag of up to five months.66 After averaging
18.6% in 2021, domestic oils and fats inflation is projected
higher at 29.9% in 2022, much above the 11.6% projected in
the previous MPR.
In summary, a range of factors, both global and domestic, has
driven food inflation higher over the past six months. While
global food prices started to show some signs of easing in
July 2022, the high price inflation experienced over the past six
months, together with elevated domestic drivers, underlies the
upward revision to food and NAB inflation in 2022.
Core inflation
Year-to-date core price inflation has averaged 4.0%. Projections
are for core price inflation to average 4.3% in 2022, slightly
higher than the 4.2% forecast at the time of the April MPR.
Core price inflation has been more muted over the past two
years, averaging 3.4% in 2020 and 3.1% in 2021. The recent
rise to 4.6% in July is primarily due to sharp increases in the
price inflation of core goods, although services price inflation
has also begun to show upward impetus in recent months,
as demand rotates back to services following the scrapping
of all remaining COVID-19-related restrictions. Core price
inflation slowed marginally to 4.4% in August following some
moderation in core goods price inflation.
64 Global oils and fats inflation averaged 65.8% in 2021 and 40.1% in the
first half of 2022.
65 The weights of oils and fats in headline and food inflation are 0.45% and
2.6% respectively.
66 The delay in pass-through could also reflect weak upstream market
competition and/or possible anticompetitive conduct given the high
concentration in the sector.

Percentage change over four quarters

Components of core inflation
Core goods
inflation
Services
inflation
Core
inflation
Source: SARB
Percentage points
Contributions to meat inflation

Sources: Stats SA and SARB
* Percentage change over 12 months

Dried meat

Poultry

Lamb

Pork

Beef

Meat inflation*
-4
-2

OCTOBER 2022
Core goods price inflation remained elevated at 4.6% in
August 2022, having moderated somewhat from 5.2%
in May. The trajectory for core goods price inflation is shaped
by various drivers, including higher global inflation, a relatively
weaker rand, increasing pass-through from elevated producer
prices and sharply higher transport costs. Inflation for exchange
rate-sensitive core goods rose to 6.5% in June 2022 and
remained elevated at 5.7% in August, up from 6.0% in April.67
For instance, inflation for alcoholic beverages and tobacco
accelerated to 6.7% in June 2022 from 6.3% in April before
slowing to 5.5% in July on the base effects of wine and beer,
while household contents inflation rose to 6.9% in July 2022
from 4.0% in April. Inflation for new motor vehicles, on the other
hand, has exhibited a declining trend from 6.0% in April 2022
to 5.1% in August.
As its fundamental drivers show few signs of abating, core
goods price inflation is expected to remain elevated, averaging
4.8% in 2022 from 3.2% in 2021, and rising to 5.5% in 2023
before moderating to 4.9% in 2024.
After remaining subdued through much of the post-COVID-19
recovery, services price inflation has begun climbing, nearly
doubling over the past year. Services price inflation rose
to 4.3% in August 2022 from 3.5% in April. The moderate
trajectory belies the recent surge in price inflation for items
more exposed to higher food and fuel price increases such
as public transport as well as restaurants and hotels, and
reflects the slow pace of medical insurance and housing
inflation thus far.68
Housing rental demand has strengthened over the review
period, which has permitted higher-than-expected rental
escalations, pushing housing inflation to 2.9% in August 2022
from 2.5% in April. Looking ahead, housing inflation is expected
to increase further, as the mortgage costs to property owners
rise and demand for rentals increases.
With respect to medical insurance, it appears that medical
schemes have broadly adopted more moderate pricing since
the pandemic, resulting in inflation repeatedly surprising to
the downside. Medical insurance recorded inflation of 4.2%
in the first quarter of 2022 against the SARB’s expectation of
6.0%. The SARB’s medical insurance forecast has therefore
been revised lower to 5.0% for 2022 from 6.7% in the previous
67 Exchange rate-sensitive core goods refer to the imported
components of the core CPI basket which are more susceptible
to exchange rate movements. These include alcoholic
beverages and tobacco (27.1%), vehicles (25.6%), household
contents (8.0%) as well as spare parts and accessories (1.9%).
Together, they constitute 62.6% of the core goods basket.
68 Public transport inflation recorded 24.3% in August (from 13.5% in April),
while restaurant and hotel price inflation rose to 5.8% in the same month
(from 5.6% in April).
Percentage change over four quarters
Core goods inflation
Sources: Stats SA and SARB

Exchange rate-sensitive core goods
Core goods

Percentage change over 12 months (both scales)
Petrol prices and inflation for public transport
as well as restaurants and hotels
Sources: Stats SA and SARB


Petrol (rhs)*

Public transport**

Restaurants and hotels*


* Moving averages
** Excluding trains

-4

-20
-10

Scale
Supply and demand of rental space*
* No survey results for 2017Q1
Source: TPN Credit Bureau


Demand**

Supply**
** Letting agents score the rental market 100 if ‘strong’,
50 if ‘average’ and 0 if ‘weak’. The average can be
somewhere between 0 and 100.

OCTOBER 2022
MPR (and from 9.0% in the October 2021 MPR). This trend
of moderate price increases may continue into 2023 as the
Council for Medical Schemes (CMS) has recommended
contribution increases below 5.7%.69
After registering 2.9% in 2021, services inflation is forecast
to average 4.0% in 2022, from 4.2% in the April MPR, and to
rise sharply to 5.4% in 2023 before slowing to 4.7% in 2024.
The downward revision to the 2022 projection is due to lower
medical insurance inflation while the upward adjustment to
the 2023 forecast relative to the previous MPR is attributed to
higher inflation expectations, a closed output gap and a more
depreciated exchange rate.70
Medium-term inflation outlook
While near-term headline inflation is driven primarily by
exogenous factors (food and fuel price dynamics), the trajectory
over the medium term reflects the dynamics of its underlying
determinants, namely inflation expectations, real ULC, the
exchange rate and the output gap. Inflation expectations have
risen sharply since the previous MPR, reflecting high domestic
consumer and producer price inflation as well as expected
second-round effects from higher food and fuel inflation as wage
demands adjust to the rising cost of living while businesses
adjust pricing to protect tight margins.
Over the review period, inflation expectations, as measured
by the Bureau for Economic Research’s (BER) survey, have
drifted higher, with large upward adjustments between the
first and second quarter but some apparent stabilisation in
the third quarter. Both the two-years-ahead and the fiveyears-ahead inflation expectations edged up between
the first and second quarter of 2022, to 5.4% and 6.0%
respectively, from 5.0% for both in the first quarter, but
moderated slightly to 5.3% and 5.4% respectively in the third
quarter.71 Of the surveyed groups – namely financial analysts,
trade unions and business – it was the latter two for whom
both the two-years-ahead and the five-years-ahead inflation
expectations moderated, albeit only marginally. This could
reflect a correction as these two subgroups had revised their
expectations substantially higher between the fourth quarter
of 2021 and the second quarter of 2022.
69 Editorial, ‘Proposal to cap medical aid price increases for 2023’.
Businesstech blog, 2 August 2022.
finance/612945/proposal-to-cap-medical-aid-price-increases-for-2023/
70 Inflation expectations affect both wage setting and price setting.
Higher inflation expectations, other things being equal, imply higher wage
increases and higher price increases, as both sellers
and workers attempt to protect real incomes.
71 The current year and one-year-ahead inflation expectations
increased further in the third quarter to 6.5% and 5.9% respectively,
from 6.0% and 5.6% respectively in the second quarter.
Percentage change over 12 months
Services inflation*
Source: Stats SA


Services excluding

medical insurance (44.21%)

Services (51.32%)

Housing (16.49%)
* Weights in brackets

Per cent

Inflation expectations*
Sources: BER and SARB

Midpoint

Current year

One year ahead

Two years ahead

Five years ahead
3–6% inflation target range
* Dotted line indicates blended forecast

OCTOBER 2022
Higher inflation expectations are associated with higher wage
demands and price increases as workers and firms seek to
protect real incomes.72 When real wage increases exceed
productivity growth, firms’ pricing behaviour adjusts as their
margins are constricted. Over the outlook period, real salaries,
which is nominal wages adjusted for inflation, are forecast
to increase by 1.3% and 0.9% in 2023 and 2024 respectively,
while productivity increases by only 0.4% and 0.9% over the
corresponding periods.73 Higher real wage increases, coupled
with a slower pace of productivity growth, raise the real
ULC gap over the medium term, in turn pushing core
inflation higher.74
72 The BER survey for the third quarter of 2022 found that labour unions
expected salaries and wages to increase by 5.9% in both 2022 and 2023,
in line with the 6.1% average wage settlement in the first half of 2022
as reported by Andrew Levy. See the Andrew Levy Wage Settlement
Survey of June 2022.
73 Nominal salary increases are expected to average 5.1%, 6.7% and 5.6%
in 2022, 2023 and 2024 respectively.
74 A 1.0% rise in the real ULC gap raises headline inflation by
0.3 percentage points and core inflation by 0.31 percentage points.
Headline inflation (September 2022 forecasts)
Percentage change over four quarters, March 2022 forecasts in brackets
Actual
Forecast
Actual
Forecast
Weight
2011–21*
2021*
2022*
2022Q1
2022Q2
2022Q3
2022Q4
2023Q1
2023Q2

Annual average percentage change
**
CPI excluding food, NAB, fuel and electricity
***
A combination of actual rentals and owners’ equivalent rent
Sources: Stats SA and SARB

Productivity

Real wage gap

Real ULC gap
Percentage points

Contributions to the ULC gap
Source: SARB
-3
-2
-1

OCTOBER 2022
The SARB QPM predicts the exchange rate to remain
undervalued throughout the forecast horizon, amplifying
pressures from imported inflation.75 The starting point for the
rand to the US dollar was R16.91 in the September 2022 MPC
meeting compared to R15.41 at the March MPC meeting.
The model projects a 2.2% depreciation over the forecast
period, with the rand averaging R17.28 by the fourth quarter
of 2024.76 In real terms, the exchange rate is on average 4.1%
undervalued throughout the forecast period as domestic
real interest rates rise slower relative to those for advanced
economies. A weaker rand diminishes the beneficial effects of
the projected moderation in global inflation, keeping domestic
core goods inflation elevated.
The output gap has effectively closed, narrowing to a projected
-0.6% in 2022 from -1.3% in the previous MPR and from -1.96%
in 2021 before turning positive in 2023 and 2024. A closing
output gap signifies improving domestic demand conditions
and permits firms to push higher price increases to relax
margin compression. This is consistent with the projected path
of core price inflation where it overshoots the midpoint of the
inflation target range over the medium term.77
Conclusion
Headline inflation is projected to average 6.5% in 2022 from
4.5% in 2021 and to gradually decelerate towards the midpoint
of the target range as exogenous drivers dissipate. Increased
core price inflation pressures – as seen in the elevated inflation
expectations and wage settlements, a depreciating rand and
a fast-closing output gap – are expected to slow the reversion
of headline inflation to the midpoint of the target range.
Risks to the inflation outlook are to the upside.
75 This reflects weaker uncovered interest rate parity (UIP) conditions.
76 The recent rand depreciation against the US dollar perhaps
reflects more the dollar strength than mere rand weakness.
77 In the model context, a closing output gap is recognised as an increase
in the marginal costs of producing an additional unit of output.

Mar 2022

Sep 2022
Implied rand/US$

Nominal exchange rate
Source: SARB

* Dotted lines indicate forecasts

Mar 2022

Sep 2022
Per cent

Real effective exchange rate gap*
* Values < 0 imply undervaluations
Source: SARB


OCTOBER 2022
Box 6 How pricey can frozen chicken get?

L Edwards, ‘South Africa’s international trade’, Policy Research on
International Services and Manufacturing (PRISM) Working Paper Series
No. 2021-1, Cape Town: PRISM University of Cape Town, 2021. https://
webcms.uct.ac.za/sites/default/files/image_tool/images/524/Papers/
PRISM%20Working%20Paper%202021-1%20-%20Lawrence.pdf

Somewhat smaller increases were recorded for boneless
pieces (from 5% to 12%), carcasses (from 27% to 31%)
and offal (from 27% to 30%) over the same period.

L Edwards, G Kamutando, M Stern, F H J Venter, S Mambara and
Z Ismail, ‘The consumer price effects of trade policy restrictions
in South Africa: A study of chicken, frozen chips and pasta,’
Forthcoming as South African Reserve Bank Working Paper.

The total import volumes of bone-in chicken pieces, the most
restricted product, in 2021 were at levels last seen in 2012,
and significantly down from the peak values of 2018.

See Edwards et al., ibid.

See P K Goldberg and M M Knetter, ‘Goods prices and exchange
rates: what have we learned?’, Journal of Economic Literature
XXXV, 1997, pp 1243–1272; A Nicita, ‘The price effect of tariff
liberalization: measuring the impact on household welfare’,
Journal of Development Economics 89(1), 2009, pp 19–27.

See also D Parsely and S Wei, ‘A prism into the PPP puzzles:
the micro-foundations of Big Mac real exchange rates’, The
Economic Journal 117(523), October 2007, pp 1336–1356.

According to the Organisation for Economic Co-operation and
Development (OECD) Glossary of Economic Terms, the free-onboard (fob) price of exports and imports of goods is ‘the market
value of the goods at the point of uniform valuation (the customs
frontier of the economy from which they are exported)’.
South Africa’s trade liberalisation of the 2000s helped to increase
domestic competition and lower the prices of traded goods for the
domestic consumer.1 However, trade measures have been increased
in recent years to protect domestic industries, as is reflected in the
rising aggregate tariff rates for consumer goods. This box assesses
the inflationary impacts of tariffs imposed by South Africa on frozen
chicken imports as well as the broader costs to consumers from
these and other tariffs.
The poultry sector has seen extensive use of protective trade
measures by South Africa in recent years. Customs duties on frozen
whole chicken and bone-in pieces have more than trebled between
2013 and 2022, increasing from 27% to 82% and from 18% to 62%
respectively.2 This has contributed to the rising prices of frozen
chicken meat and declining imports, with the effects exacerbated
by anti-dumping duties and safeguards imposed to limit substitution
towards the European Union (EU).3, 4 Frozen chicken experienced a
cumulative increase in most favoured nation (MFN) tariffs from 18%
in 2010 to 62% in 2021, increasing consumer prices by between
13% and 40%.5
While trade policy directly affects the price of imported goods by
imposing a tax at the border, its overall impact on the landed price
depends on whether foreign exporters absorb some of the cost.6
The pass-through of tariffs and other import duties to domestic
consumer prices is higher when demand is less elastic (i.e. when
the inclination to consume does not change much despite price
increases), which is often the case with necessities such as
chicken meat.7
The adverse impacts of tariffs on consumer prices in South Africa
can be seen in the large wedge between the free-on-board (fob)
price of imports and the fob price inclusive of all duties.8 The marked
widening of this gap over the recent period reflects more binding
import restrictions, as discussed above. This is also evidenced in
the growing divergence between the consumer price index (CPI) for
frozen chicken and the CPI for pork, which is a substitute, after they
had tracked one another relatively closely from 2012 to 2016.

Fresh whole bird

Mechanically deboned meat

Frozen carcasses

Frozen whole bird

Fresh cuts

Frozen boneless cuts

Frozen offal

Fozen bone-in cuts
Thousand tons
Volume of chicken imports

Sources: SARS and World Bank

Because chicken is the main source of meat protein for most lowincome households in South Africa, tariffs on chicken products
are regressive.9 To this end, the temporary suspension of tariffs
on chicken imports announced by government should support the
purchasing power of, and the real consumption by, lower-income
South Africans.
Looking ahead, greater use of economy-wide cost-benefit
analyses for sectoral trade policy considerations could provide
better insights into the long-run impact of tariffs.
9 This is true of all goods consumed predominantly by the poor.
Frozen chicken and pork prices

Source: Edwards, Stern and Venter (2022)

fob plus tariff bone-in cuts

CPI frozen chicken

CPI pork

fob price bone-in cuts

Index: Jan 2012 = 100

OCTOBER 2022
Box 7 Forecasting inflation amid major shocks
1 The 2020 forecast errors were discussed in Box 7 of the
October 2021 Monetary Policy Review.
2 In the March 2020 meeting, headline inflation was forecast
to average 4.6% while in the April meeting it was forecast at
4.5%, in line with the actual outcome.
3 Terms of trade rose to a record level by the second
quarter of 2021.
4 The root mean square error is a measure of forecast accuracy
which ensures that errors in opposite directions do not cancel
each other out.
5 The MPC attaches risks to the baseline forecast and evaluates
alternative forecast scenarios.
Forecasts of inflation over the medium term play a central role in
monetary policy decisions as policy is calibrated to, and acts on,
the deviation of expected inflation from the midpoint of the target
range. The South African Reserve Bank (SARB) routinely conducts
forecast error analysis to assess its performance in forecasting
inflation and to facilitate continuous model improvements.
These evaluations are also benchmarked against economic
analysts’ forecasts. This box evaluates the accuracy of the SARB’s
inflation forecasts for 2021.1
Evaluations show that inflation forecasts for 2021 were below actual
inflation outcomes in most of the Monetary Policy Committee (MPC)
meetings except for the March 2020 and April 2020 meetings,
when forecasts were in line with actual outcomes.2
A decomposition of the headline inflation error indicates that
non-core inflation components were understated while core
inflation was overstated. Underestimation of non-core inflation
can be traced to unanticipated supply- and demand-side shocks.
To begin with, electricity inflation surprised on the upside when
Eskom successfully disputed previous decisions of the National
Energy Regulator of South Africa (NERSA) in court. Fuel inflation
similarly surprised on the upside, underpinned by strong demand
for oil on the back of a faster-than-anticipated rebound in the global
economy from the COVID-19 pandemic. Food inflation also came
in higher, in line with sharply rising global food prices and despite a
bumper domestic harvest.
The overestimation of core inflation was largely from services, which
on average explain about 80% of the error. This was partly a supplyside shock as both medical insurance premiums and education
fees increased by less than their long-term averages while housing
inflation declined further on oversupply amid softening demand.
Core goods inflation picked up at a slower pace than anticipated
as the rand exchange rate appreciated sharply supported by terms
of trade gains.3
Notwithstanding the extreme uncertainty as well as the multiple
and overlapping supply-side shocks during the evaluation period,
the SARB’s forecast errors for headline inflation remained in line
with historical averages. This forecast performance was not unique
to the SARB, however. Over the same period, both the Reuters
median and the SARB had the same root mean square error of
0.2% and 0.4% for current-year and one-year-ahead forecasts
respectively.4 The fact that both the Reuters median and the SARB
were surprised to the upside underscores the unexpected nature of
the supply shocks that shaped actual inflation outcomes. Ultimately,
forecasts are as good as their underlying assumptions, and are
subject to no further shocks hitting the economy – a condition hardly
ever met during this period. Forecasts should thus be interpreted
with caution.5

Core goods

Services

Fuel

Electricity

Food

Headline

Reuters
Percentage points
Inflation forecast errors
Mar 2020
Apr 2020
May 2020
Jul 2020
Sep 2020
Nov 2020
Jan 2021
Mar 2021
May 2021
Jul 2021
Sep 2021
Nov 2021
Jan 2022
Source: SARB
MPC meeting dates


OCTOBER 2022
Conclusion
In the three years since the emergence of the COVID-19
virus, the global economy has endured multiple and
overlapping supply and demand shocks. The trajectory for
the global economy remains highly uncertain, with sharply
higher inflation and slowing growth. Inflationary pressures,
which initially originated from supply-demand imbalances
occasioned by lockdowns and expansionary fiscal and
monetary policies as well as higher food and oil prices,
have been exacerbated by Russia’s invasion of Ukraine
at the end of February this year. At the same time, labour
market mismatches which resulted from the pandemic have
taken longer to resolve, feeding into wages and pushing
services prices higher. As a result, global inflation has
risen sharply to levels not seen in over four decades and is
unsettling inflation expectations. In response, central banks
in both advanced and emerging markets have tightened
their monetary policy stances faster than was considered
necessary even earlier this year.
Tightening financial conditions, sharply higher food and
energy prices as well as geopolitical tensions have dragged
down both actual and expected global growth. The IMF
recently adjusted its outlook for global GDP growth down
to 3.2% and 2.9% for 2022 and 2023 respectively.78 The
combination of high inflation and slowing growth normally
presents difficult trade-offs for central banks. However,
where inflation takes on a momentum beyond first-round
supply shocks and seriously threatens future growth, central
banks will seek to re-establish low inflation conditions
despite potential short-run costs to growth from tighter
policy. This resolve comes from the clear evidence that
growth is stronger, more broad-based and more enduring
under conditions of low and stable inflation.79 Short-run
costs are therefore tolerated to avoid much higher inflation
and the far larger economic consequences of it, including
rising income inequality, depressed economic activity and
higher unemployment.
Early in the timeline of the pandemic, the SARB cut the
repo rate to an all-time low of 3.5%, bringing the prime
rate down to a 54-year low of 7.0%. This monetary policy
stance was maintained until November 2021 when the
MPC began to gradually raise the repo rate as inflationary
pressures started to show. Since then, inflation has risen
markedly, initially from rising food and fuel prices, and now
78 See the July 2022 WEO Update. In January, the IMF projected global growth
of 4.4% and 3.8% for 2022 and 2023 respectively. This was subsequently
lowered to 3.6% for both 2022 and 2023 in April 2022.
79 See R J Barro, ‘Inflation and economic growth’, Annals of Economics
and Finance 14(1), 2013, pp 85–109; J Andres and I Hernando,
‘Does inflation harm economic growth? Evidence for the OECD’,
National Bureau of Economic Research Working Paper No. 6062,
Cambridge: National Bureau of Economic Research, June 1997.

is more broad-based. Inflation breached the upper limit
of the 3–6% target range in May 2022 and rose sharply
to 7.8% in July before moderating marginally to 7.6% in
August, raising serious questions about the widely noted
‘inflation exceptionalism’ that South Africa appeared to
experience for much of 2021.
The sharp rise in inflation over the review period reflects
the materialisation of the inflation risks that the MPC has
repeatedly highlighted over the past 12 months. Among
these, the rand has weakened, increasing pass-through
and spillovers from high fuel inflation to headline inflation.80
Other upside risks, however, remain. Inflation expectations
have risen sharply over the past six months, with some
indicators breaching the upper limit of the target range,
while wage settlements in the first half of the year averaged
around 6%, which could add further pressures to inflation
expectations.
In an environment of heightened uncertainty, characterised
by rising inflation and upward surprises of inflation
outcomes from month to month, the possibility of inflation
expectations de-anchoring creates substantial risks to the
monetary policy framework and the economy. As inflation
has risen and price pressures have intensified, the SARB’s
MPC has moved to normalise rates, raising the repo rate
by a cumulative 200 basis points over the review period
and by 275 basis points since November 2021. When
adjusting for inflation, however, real interest rates relative
to productivity and income growth remain low, and the
SARB’s inflation forecast remains above the midpoint of
the target range over the medium term on an annual basis.
These considerations suggest that further normalisation
of policy rates will be needed to raise rates to levels which
are consistent with a stable and lower inflation rate.81
Structural reforms that boost productivity growth are
supportive of lower inflation and enable lower interest
rates. Encouragingly, bold reforms have begun to take
shape in the energy space. However, a range of reforms
is required. Structural reforms, together with sustainable
fiscal balances as well as a clearer and lower inflation
target that locks in permanently lower interest rates,
would generate large macroeconomic and welfare gains
to the economy.
80 Headline PPI has been on an upward trend since May 2020
and reached 18% year on year in July 2022.
81 The QPM foresees the real repo rate rising from the current negative
levels to positive real rates and to gradually converge to its
neutral level by the end of 2024.

OCTOBER 2022
Statement of the Monetary Policy Committee
19 May 2022
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

The International Monetary Fund’s (IMF) April forecast for global growth in 2023 is 3.6% and 3.4% for 2024.

Global growth in the QPM is a trade-weighted average of South Africa’s trading partners.

The January forecast for first-quarter growth was 2.1%, seasonally adjusted and annualised, revised up to 3.2% in March.

The growth forecast includes expected changes in the policy rate.

Potential growth for 2022 is 0.6% (down from 0.8%), 0.9% (up from 0.8%) in 2023 and unchanged at 1.1% in 2024.

The Brent crude oil assumptions in March were US$103, US$80 and US$75 respectively.

In March, the current account surplus for 2022 was expected to be about 3.0% of GDP, 1.6% of GDP in 2023 and 0.8% of GDP in 2024.
In recent months, the Omicron variant has transmitted globally
and a major war started in Europe. The economic costs of
the coronavirus generally continue to fall, as most economies
remained open despite the rapid spread of the Omicron
variant. China’s response to the new COVID-19 outbreak and
the sustained invasion of Ukraine by Russia will, however,
weigh heavily on global economic growth and contribute to
higher inflation. The war has impaired the production and
trade of a wide range of energy, food and other commodities,
and will continue to do so for some time.
As a result of these factors, the International Monetary Fund
(IMF) reduced its global growth forecast for 2022 to 3.6%.
The South African Reserve Bank’s (SARB) forecast for global
growth in 2022 is revised down from the March meeting
to 3.5% (from 3.7%), and for 2023 is lowered to 2.7% (from
2.8%).1 The economy of the eurozone is also expected to
weaken significantly this year and the next. For 2024, global
growth remains unchanged at 2.7%.2
Dramatically higher oil, commodity and food prices,
additional constraints to trade and finance, and rising debt
costs all worsen economic conditions for most emerging and
developing economies.
Although policy settings in advanced economies remain
broadly accommodative, policy normalisation by major
central banks and higher yields have tightened global
financial conditions. Investor appetite for riskier assets is
weaker and asset values in major markets have declined
sharply. Economies that failed to take advantage of better
global conditions or to reduce large macroeconomic
imbalances remain vulnerable to currency depreciation
and capital outflows.
Last year saw the ongoing recovery of the South African
economy from the pandemic, expanding by 4.9%. The
economy is expected to grow by 1.7% in 2022, revised down
from 2.0% at the time of the March meeting. This is due to
a combination of short-term factors, including the flooding
in KwaZulu-Natal and the continued electricity supply
constraints. Growth in output in the first quarter of this year is
expected to be 3.6%, stronger than the 3.2% expected at the
time of the March meeting.3
The economy is forecast to expand by 1.9% in both 2023 and
2024.4 At these rates, growth remains well above a low rate of
potential, impacted by load-shedding as well as infrastructure
and policy constraints.5 Investment by the government sector
has weakened significantly in recent years and that of public
corporations is forecast to be very modest. Household
spending remains supportive as a result of good growth in
disposable income, rising asset prices and low interest rates.
Private investment has also proved to be more resilient than
previously expected. Tourism, hospitality and construction
should see stronger recoveries as the year progresses.
Overall, and after revisions, the risks to the medium-term
domestic growth outlook are assessed to be balanced. With
potential growth and expected gross domestic product (GDP)
growth revised somewhat lower for this year, the output gap
is unchanged over the forecast period. The output gap is
expected to turn positive after the third quarter of 2023.
Although important commodity export prices such as for
coal, iron ore, platinum and rhodium generally decreased in
the latter half of 2021, they surged higher with the war. Oil
prices spiked to around US$130 per barrel in the early days of
the conflict. While oil prices currently sit at about US$110 per
barrel, we expect them to stay higher than we did in March
and to average US$103 per barrel for 2022, US$90 per barrel
in 2023 and US$85 per barrel in 2024.6
South Africa’s export commodity price basket is forecast to
rise by 9.5% for the year as a whole (up from 8.0%), keeping
the terms of trade elevated, before gradually falling in 2023
and 2024. As a result of these export and import price
developments, the current account surplus is expected to
reach 2.1% of GDP this year, easing to 0.8% in 2023 and to
around 0.0% in 2024.7
Although fiscal risk has eased on the back of better tax
revenue and reduced borrowing needs, financing conditions
remain tight and the yield curve for rand-denominated bonds
is steep. Ten-year bond yields increased to about 10.3% in
late February and have remained at around that level.
The commodity export price surge appreciated the value
of the currency. The rand has since depreciated strongly
(from April) due to the start of policy normalisation in major

OCTOBER 2022
economies and the slowdown in China’s economy. The
implied starting point for the rand forecast is R15.88 to the
United States (US) dollar compared with R15.41 at the time of
the previous meeting.8
As the global economy rebounded from the pandemic,
continued policy accommodation and supply shortages
increased the prices of many goods and commodities.9
These prices have been given fresh impetus from further
transport delays, supply constraints and food export
restrictions. Producer price increases have passed through to
wages and consumer prices in major economies. Our estimate
for inflation in the Group of Three (G3) economies is revised
higher to 6.3% in 2022 (from 5.6%) and down to 2.7% in 2023
(from 3.0%) before moderating to 2.0% in 2024 (from 2.3%).10
The IMF expects global inflation of 7.4% in 2022 and 4.8%
in 2023.11
Oil prices are revised up further for this year, and fuel price
inflation is higher at 31.2% (up from 26.1%). Local electricity
price inflation is unchanged at 11.0% in 2022, 9.2% in 2023
and 10.0% in 2024.
As a result of higher global food prices, local food price
inflation is also revised up and is now expected to be 6.6%
in 2022 (up from 6.1%) and 5.6% in 2023 (up from 5.1%).
Food price inflation is forecast to ease to 4.2% in 2024 (down
from 4.4%).
The SARB’s forecast of headline inflation for this year is
revised higher to 5.9% (from 5.8%), primarily due to the higher
food and fuel prices. While food prices will stay high, fuel
price inflation should ease in 2023, helping headline inflation
to fall to 5.0% despite slightly higher core inflation. Headline
inflation of 4.7% is now expected in 2024.
Core inflation is forecast lower at 3.9% in 2022 (down from
4.2%) due to lower services price inflation. Our forecast for
core inflation in 2023 and 2024 is slightly higher at 5.1% (from
5.0%) and 4.8% (from 4.7%) respectively. Core goods inflation
is forecast higher throughout the horizon, while core services
inflation is unchanged in 2023 and 2024.
The risks to the inflation outlook are assessed to the upside.
Global producer price and food price inflation continued
to surprise higher in recent months and may do so again.
Russia’s war in Ukraine is likely to persist for the rest of
this year and may have significant further effects on global
prices. Oil prices increased strongly from the start of the war
and may rise more as stresses in energy markets intensify.

The rand has depreciated by about 7.4% to the US dollar since the March meeting.

World food prices continue to rise. The assumption used for the forecast for US dollar-denominated world food prices in 2022 is revised higher
from 6.8% to 15.3%.
10 The G3 comprises the US, the eurozone and Japan. The latest consumer price index (CPI) inflation in the respective components sits at 8.3%,
7.5% and 1.2% respectively.
11 The IMF expects advanced economy inflation of 5.7% and emerging market economy inflation of 8.7% in 2022.
12 The Q1 Bureau for Economic Research (BER) survey expectations rose above the target range midpoint to 5.1% (from 4.8%) for 2022 and to 5.0%
(from 4.7%) for 2023. Market analysts (Reuters Econometer) in May expect inflation to be higher at 5.9% (from 5.5%) in 2022, 4.7% (from 4.4%) in 2023
and 4.5% (from 4.4%) in 2024.
13 Market-based rates are calculated from the break-even inflation rate, which is the yield differential between conventional and inflation-linked bonds.
These now sit at 5.93% for the 5-year and 6.65% on the 10-year break-even. The 15-year break-even inflation sits at 6.91%.
Electricity and other administered prices continue to present
short- and medium-term risks. Higher diesel and coal prices
may result in upward revisions to our electricity price forecast
for 2023. Given the below-inflation assumptions for public
sector wage growth as well as higher petrol and food price
inflation, considerable risk attaches to a still moderate nominal
wage forecast.
Higher-than-expected inflation has pushed major central
banks to accelerate the normalisation of global policy rates,
tightening global financial conditions. On balance, and
with some exceptions, capital flow and market volatility
is expected to remain for emerging market assets and
currencies. Alongside currency depreciation, other risks to
the inflation outlook, such as elevated food and fuel prices,
have been realised.
Average surveyed expectations of future inflation have
increased to 5.1% for 2022 (from 4.8%). Expectations for
inflation based on market surveys have increased to 5.9%.12
Long-term inflation expectations derived from the break-even
rates in the bond market have also increased.13
In the near term, headline inflation has increased well above
the midpoint of the inflation target band and is forecast
to breach the target range in the second quarter of 2022.
Headline inflation then returns closer to the midpoint in the
fourth quarter of 2024, taking into account the policy rate
trajectory indicated by the SARB’s Quarterly Projection
Model (QPM).
Against this backdrop, the Monetary Policy Committee (MPC)
decided to increase the repurchase (repo) rate by 50 basis
points to 4.75% per year with effect from 20 May 2022. Four
members of the MPC preferred the announced increase and
one member preferred a 25 basis points rise in the repo rate.
The implied policy rate path of the QPM, given the inflation
forecast, indicates gradual normalisation through to 2024. As
usual, the repo rate projection from the QPM remains a broad
policy guide, changing from meeting to meeting in response
to new data and risks.
Economic and financial conditions are expected to remain
more volatile for the foreseeable future. In this uncertain
environment, policy decisions will continue to be datadependent and sensitive to the balance of risks to the outlook.
The MPC will seek to look through temporary price shocks
and focus on potential second-round effects and the risks of
de-anchoring inflation expectations.

OCTOBER 2022
The current repo rate levels reflect an accommodative policy
stance through the forecast period, keeping financial conditions
supportive of credit demand as the economy continues to
recover.14 The SARB has ensured adequate liquidity in domestic
markets and will continue to closely monitor funding markets for
stress.
Better-anchored expectations of future inflation could support
lower interest rates and can be realised by achieving a prudent
public debt level, increasing the supply of energy, moderating
administered price inflation and keeping wage growth in line with
productivity gains. Such steps would enhance the effectiveness
of monetary policy and its transmission to the broader economy.

14 The forecasted trajectory for the repurchase (repo) rate implies a rise in
the inflation-adjusted repo rate from -1.5% for 2021 to -0.9% for 2022,
1.2%
for 2023 and 2.0% in 2024. The real repo rate calculation here is based
on the one-quarter-ahead inflation forecast and refers to annual average
rates.
Per cent

2017 2018 2019 2020 2021 2022 2023 2024
Repurchase rate forecast (May 2022)

90%

60%

30%

Repo rate

The uncertainty bands for the repo rate are based on historical
forecasting experience and stochastic simulations in the QPM. The
bands are symmetric and do not reflect any assessment of upside or
downside risk.
Source: SARB

OCTOBER 2022
Summary of assumptions: Monetary Policy Committee
meeting on 19 May 2022*
1. Foreign sector assumptions
Actual
Forecast

1. Real GDP growth in South Africa’s

2. Output gap in South Africa’s major trading-partner countries


3. Change in international commodity prices in US$

2. Domestic sector assumptions
Actual
Forecast


Notes
1.
Shaded areas indicate forecast assumptions.
2.
The figures in brackets represent the previous assumptions of the Monetary Policy Committee.
*
For an explanation of foreign sector assumptions and domestic sector assumptions, see pages 59 and 60.

OCTOBER 2022
Summary of selected forecast results: Monetary Policy Committee meeting
on 19 May 2022
Selected forecast results (annual)
Actual
Forecast


Notes
1.
The nominal effective exchange rate (NEER) is based on the bilateral exchange rates of South Africa’s three largest trading partners (the eurozone, the US
and Japan). The bilateral exchange rates are weighted by export trade weights.
2.
The real effective exchange rate (REER) is the NEER deflated by the consumer price differential between South Africa and the trade-weighted CPI of the eurozone,
the US and Japan.
3.
The real exchange rate gap signifies the extent to which the real exchange rate deviates from its estimated equilibrium level. A positive gap shows an overvaluation
of the currency, and vice versa.
4.
The forecast of the current account balance is obtained from the SARB’s Core Macroeconometric Model.
5.
Shaded areas indicate the forecasts of the Monetary Policy Committee.
6.
The figures in brackets represent the previous forecasts of the Monetary Policy Committee.
Selected forecast results (quarterly)
Year-on-year percentage change


1. Headline inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


2. Core inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Notes
1. Shaded areas indicate the forecasts of the Monetary Policy Committee.
2. The figures in brackets represent the previous forecasts of the Monetary Policy Committee.

OCTOBER 2022
Statement of the Monetary Policy Committee
21 July 2022
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

Global growth in the QPM is a trade-weighted average of South Africa’s trading partners.

An update to the World Economic Outlook will be released on 26 July 2022.

The growth forecast includes expected changes in the policy rate.

Potential growth for 2022 is 0.5% (from 0.6%), 0.8% (from 0.9%) in 2023 and unchanged at 1.1% in 2024.

The Brent crude oil assumptions in May were US$103, US$90 and US$85 respectively.

In May, the current account surplus for 2022 was expected to be about 2.1% of GDP, 0.8% of GDP in 2023 and 0.0% of GDP in 2024.
In the wake of the COVID-19 pandemic and aggravated
geopolitical tensions, the global economy has entered
a period of persistently high inflation and weaker economic
growth. Many developing economies have yet to recover
fully from the pandemic. Global economic conditions
remain fragile.
Russia’s war in Ukraine will continue to impair production
and trade of a wide range of energy, food and other
commodities. The supply of energy to the eurozone is limited
as winter approaches, and is likely to reduce growth this
year and the next. With rapid inflation and withdrawal of
policy stimulus, the United States (US) will also experience
slower economic growth. China’s recovery from the
COVID-19 outbreak and resultant lockdowns remain
uncertain. The much-needed resumption of international
travel and tourism will take time to generate large benefits.
Taking these and other factors into account, the South
African Reserve Bank’s (SARB) forecast for global growth in
2022 is revised down from 3.5% in the May meeting to 3.3%
and is lowered to 2.5% (from 2.7%) for both 2023 and 2024.1
The International Monetary Fund (IMF) has signalled a lower
global growth forecast for 2022 and 2023 in its upcoming
World Economic Outlook Update.2
Although policy settings in advanced economies remain
broadly accommodative, policy normalisation by major
central banks has accelerated and higher yields are
tightening global financial conditions. Investor appetite for
riskier assets is weaker and asset values in major markets
have declined sharply.
Last year saw the South African economy expand by 4.9%.
This year the economy is expected to grow by 2.0%, revised
up from 1.7%. Growth in output in the first quarter of this
year surprised to the upside, at 1.9%, stronger than the
0.9% expected at the time of the May meeting. Despite this
outcome, flooding in KwaZulu-Natal and more extensive
load-shedding are expected to result in a contraction of
1.1% in the second quarter. Growth in the third and fourth
quarters is forecast to be 0.7% and 0.4% respectively.
The economy is forecast to expand by 1.3% in 2023 and by
1.5% in 2024, below the previous projection of 1.9% for both
years at the time of the last meeting.3 Despite these
downward revisions, economic growth remains above a low
rate of potential.4 Private investment has strengthened on
the back of the recovery, but public sector investment
remains weak. Household spending remains supportive of
growth, but is likely to soften next year due to higher inflation,
lower asset prices and rising interest rates. Tourism,
hospitality and construction should see stronger recoveries
as the year progresses.
With potential growth revised somewhat lower for this year
and expected gross domestic product (GDP) growth higher,
the output gap narrows slightly faster over the forecast
period. The output gap is expected to turn positive in the
second quarter of 2023. Overall, and after revisions, the
risks to the medium-term domestic growth outlook are
assessed to the downside.
Commodity price movements in recent months have been
mixed. The export price of coal has increased alongside oil,
while prices for metals have declined. Oil prices spiked to
around US$130 per barrel in the early days of the conflict in
Ukraine. While oil prices currently sit at around US$106 per
barrel, we expect them to stay higher than we did in May,
and to average US$108 per barrel for 2022, US$92 per
barrel in 2023 and US$85 per barrel in 2024.5
South Africa’s export commodity price basket has come
down from earlier peaks and is now forecast to rise by 3.2%
for the year as a whole (down from 9.5%) before falling in
2023 by about 19.0% and by a further 8.0% in 2024. As a
result of these export and import price and volume
developments, the current account balance is expected to
register a surplus of 2.0% of GDP this year, falling to 0.4% of
GDP in 2023 and reaching a deficit of 0.4% of GDP in 2024.6
Although fiscal risk has eased on the back of better tax
revenue and reduced borrowing needs, financing conditions
remain tight and the yield curve for rand-denominated
bonds is steep. Ten-year bond yields increased to about
11.4% in recent months.
Policy normalisation in major economies and the slowdown
in China have contributed to rand depreciation in recent
months. The implied starting point for the rand forecast is

OCTOBER 2022
R16.10 to the US dollar compared with R15.88 at the time of
the previous meeting.7
While economic growth is slowing globally, inflation
continues to surprise to the upside. Sustained policy
accommodation, supply shortages and other restrictions
have sharply increased the prices of many goods, services
and commodities.8 Producer price increases continue to
pass through to wages and consumer prices globally.
Our estimate for inflation in the Group of Three (G3)
economies is revised higher to 6.9% in 2022 (from 6.3%)
and up to 3.0% in 2023 (from 2.7%), and stays unchanged
at 2.0% in 2024.9
A higher global oil price and rand weakness contribute to
higher expected fuel price inflation for this year at 38.9% (up
from 31.2%) and to 4.5% in 2023 (up from -0.3%).
Local electricity price inflation is unchanged at 11.0% in
2022, 9.2% in 2023 and 10.0% in 2024.
As a result of higher global food prices, local food price
inflation is also revised up and is now expected to be 7.4%
in 2022 (up from 6.6%) and 6.2% in 2023 (up from 5.6%).
The food price inflation forecast for 2024 is unchanged
at 4.2%.
The SARB’s forecast of headline inflation for this year is
revised higher to 6.5% (from 5.9%). Higher food, fuel and
core inflation are expected to keep headline inflation elevated
at 5.7% in 2023 (up from 5.0%). Headline inflation of 4.7% is
expected in 2024, unchanged since the May meeting.
Core inflation is forecast higher at 4.3% in 2022 (up from 3.9%),
rising to 5.6% (from 5.1%) in 2023. Our forecast for core
inflation in 2024 is slightly higher at 4.9% (from 4.8%). Core
goods and services price inflation is forecast higher through to
the end of 2024 compared to May when only core goods
inflation was rising each year.10 Nominal wages are forecast to
rise by 5.6% in 2022, 7.3% in 2023 and 5.7% in 2024.
The risks to the inflation outlook are assessed to the upside.
Global producer price and food price inflation continued to
surprise higher in recent months and may do so again.
Russia’s war in Ukraine is likely to persist for the rest of this

The rand has depreciated by about 6.3% to the US dollar since the May meeting and by 7.2% to the US dollar in the year to date.

World food prices continue to rise. The assumption used for the forecast for US dollar-denominated world food prices in 2022 is revised higher
from 15.3% to 22.3%.

The G3 comprises the US, the eurozone and Japan. The latest consumer price index (CPI) inflation in the respective components sits at 9.1%,
8.6% and 2.4% respectively.
10 Core goods refers to total CPI goods excluding food and non-alcoholic beverages (NAB), fuel and energy, whereas services include all surveyed
services within the CPI basket.
11 The weighted average of G3 policy rates is forecast to be 1.2% in 2022, 3.0% in 2023 and 3.1% in 2024.
12 The Q2 Bureau for Economic Research (BER) survey expectations rose above the target range midpoint to 6.0% (from 5.1%) for 2022 and to 5.6%
(from 5.0%) for 2023.
13 Market analysts (Reuters Econometer) in July expect inflation to be 6.5% (from 6.0%) in 2022, 5.0% (from 4.7%) in 2023 and 4.4%
(from 4.5%) in 2024.
14 Market-based rates are calculated from the break-even inflation rate, which is the yield differential between conventional and inflation-linked bonds.
These now sit at 6.97% for the 5-year and 7.49% on the 10-year break-even. The 15-year break-even inflation sits at 7.64%.
year and may have significant further effects on global
prices. Oil prices increased strongly from the start of the war
and may rise further as stresses in energy markets intensify.
Electricity and other administered prices continue to present
short- and medium-term risks. Given the below-inflation
assumptions for public sector wage growth as well as higher
petrol and food price inflation, considerable risk still attaches
to the now elevated nominal wage forecast.
Higher-than-expected inflation has pushed major central
banks to accelerate the normalisation of policy rates,
tightening global financial conditions and raising the risk
profiles of economies needing foreign capital. We now expect
G3 interest rate levels for the forecast period to be twice as
high as expected in May.11 On balance, and with few
exceptions, capital flow and market volatility is expected to
remain elevated for emerging market assets and currencies.
Alongside currency depreciation, other risks to the inflation
outlook, such as increased food and fuel prices, have been
realised, pushing up unit labour costs and expectations of
future inflation. Average surveyed expectations of future
inflation have increased to 6.0% for 2022 and 5.6% for
2023.12 Expectations for inflation based on market surveys
have increased to 6.5%.13 Long-term inflation expectations
derived from the break-even rates in the bond market have
also increased.14
In the second quarter of this year, headline inflation breached
the upper limit of the target range and is expected to remain
above it until the second quarter of 2023. By the fourth
quarter of 2024, we expect headline inflation to revert to the
midpoint of the target range on the back of declining fuel
and food inflation. The forecast takes into account the policy
rate trajectory indicated by the SARB’s Quarterly Projection
Model (QPM). As usual, the repurchase (repo) rate projection
from the QPM remains a broad policy guide, changing from
meeting to meeting in response to new data and risks.
Against this backdrop, the Monetary Policy Committee
(MPC) decided to increase the repo rate by 75 basis points
to 5.50% per year with effect from 22 July 2022. Three
members of the MPC preferred the announced increase;

OCTOBER 2022
one member preferred a 100 basis points increase; another
member preferred a 50 basis points increase.
The revised repo rate path remains supportive of credit
demand in the near term while raising rates to levels
consistent with the current view of inflation risks. The aim of
policy is to stabilise inflation expectations more firmly around
the midpoint of the target band and to increase confidence
of hitting the inflation target range in 2024.15
Guiding inflation back towards the midpoint of the target
band can reduce the economic costs of high inflation and
enable lower interest rates in the future. Achieving a
prudent public debt level, increasing the supply of energy,
moderating administered price inflation and keeping wage
growth in line with productivity gains would enhance the
effectiveness of monetary policy and its transmission to
the broader economy.
Economic and financial conditions are expected to remain
more volatile for the foreseeable future. In this uncertain
environment, monetary policy decisions will continue to be
data-dependent and sensitive to the balance of risks to the
outlook. The MPC will seek to look through temporary price
shocks and focus on potential second-round effects and
the risks of de-anchoring inflation expectations. The SARB
will continue to closely monitor funding markets for stress.
15 The forecasted trajectory for the repurchase (repo) rate implies a rise in the inflation-adjusted repo rate from -1.7% for 2021 to -2.0% for 2022, 1.0%
for 2023 and 2.0% in 2024. The real repo rate calculation here is based on the one-quarter-ahead inflation forecast and refers to annual average rates.
Per cent

2017 2018 2019 2020 2021 2022 2023 2024
Repurchase rate forecast (July 2022)

90%

60%

30%

Repo rate

The uncertainty bands for the repo rate are based on historical
forecasting experience and stochastic simulations in the QPM. The
bands are symmetric and do not reflect any assessment of upside or
downside risk.
Source: SARB

OCTOBER 2022
Summary of assumptions: Monetary Policy Committee
meeting on 21 July 2022*
1. Foreign sector assumptions
Actual
Forecast

1. Real GDP growth in South Africa’s

2. Output gap in South Africa’s major trading-partner countries


3. Change in international commodity prices in US$

2. Domestic sector assumptions
Actual
Forecast


Notes
1.
Shaded areas indicate forecast assumptions.
2.
The figures in brackets represent the previous assumptions of the Monetary Policy Committee.
*
For an explanation of foreign sector assumptions and domestic sector assumptions, see pages 59 and 60.

OCTOBER 2022
Summary of selected forecast results: Monetary Policy Committee meeting
on 21 July 2022
Selected forecast results (annual)
Actual
Forecast


Notes
1.
The nominal effective exchange rate (NEER) is based on the bilateral exchange rates of South Africa’s three largest trading partners (the eurozone, the US
and Japan). The bilateral exchange rates are weighted by export trade weights.
2.
The real effective exchange rate (REER) is the NEER deflated by the consumer price differential between South Africa and the trade-weighted CPI of the eurozone,
the US and Japan.
3.
The real exchange rate gap signifies the extent to which the real exchange rate deviates from its estimated equilibrium level. A positive gap shows an overvaluation
of the currency, and vice versa.
4.
The forecast of the current account balance is obtained from the SARB’s Core Macroeconometric Model.
5.
Shaded areas indicate the forecasts of the Monetary Policy Committee.
6.
The figures in brackets represent the previous forecasts of the Monetary Policy Committee.
Selected forecast results (quarterly)
Year-on-year percentage change


1. Headline inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


2. Core inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Notes
1. Shaded areas indicate the forecasts of the Monetary Policy Committee.
2. The figures in brackets represent the previous forecasts of the Monetary Policy Committee.

OCTOBER 2022
Statement of the Monetary Policy Committee
22 September 2022
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

Global growth in the QPM is a trade-weighted average of South Africa’s trading partners. Global growth in 2024 is revised down to 2.4% from 2.5%
at the time of the July meeting. The International Monetary Fund’s (IMF) July forecast expected global growth of 3.2% in 2022 and 2.9% in 2023.
An update to the World Economic Outlook will be released in October.

The growth forecast includes expected changes in the policy rate as given by the QPM.

Potential growth for 2022 is unchanged at 0.5%, 0.8% in 2023 and 1.1% in 2024.

The Brent crude oil assumptions in July were US$108, US$92 and US$85 respectively.

In July, the current account surplus for 2022 was expected to be 2.0% of GDP, 0.4% of GDP in 2023 and -0.4% of GDP in 2024.

The rand has depreciated by about 6.3% to the US dollar since the May meeting and by 7.2% to the US dollar year to date.
In the wake of the COVID-19 pandemic and heightened
geopolitical tensions, the global economy has entered a
period of persistently high inflation and weaker economic
growth. Many developing economies exited the pandemic
with less than full recovery and high debt levels.
Russia’s war in Ukraine continues to impair production and
trade of a wide range of energy, food and other commodities.
The supply of energy to the euro area is limited as winter
approaches, placing immense strain on households,
businesses and governments. With rapid inflation and
monetary policy normalisation, the United States (US) may also
experience slower economic growth. While China’s recovery
from the COVID-19 lockdowns has strengthened, economic
growth is expected to remain below longer-term trends.
Taking these and other factors into account, the South
African Reserve Bank’s (SARB) forecast for global growth in
2022 is revised down from 3.3% in the July Monetary Policy
Committee (MPC) meeting to 3.0%, and is lowered to 2.0%
(from 2.5%) for 2023.1
Although policy settings in advanced economies remain
accommodative, policy normalisation has accelerated, and
higher yields are tightening global financial conditions. Asset
values in major markets have declined sharply, and investor
appetite for riskier assets has weakened further.
This year, the SARB expects the South African economy
to grow by 1.9% (from 2.0%). Growth in the first quarter of
this year surprised to the upside, at 1.7%. In the second
quarter, flooding in KwaZulu-Natal and more extensive loadshedding contributed to a contraction of 0.7%. Growth in
the third and fourth quarters is forecast to be 0.4% and
0.3% respectively.
The economy is forecast to expand by 1.4% in 2023 and
by 1.7% in 2024, above previous projections.2 Private
investment has strengthened on the back of the recovery,
but public sector investment remains weak. Household
spending remains supportive of growth, but is likely to soften
next year. Tourism, hospitality and construction should see
stronger recoveries as the year progresses.
With a low rate of potential, our current growth forecast
leaves the output gap broadly unchanged.3 The output
gap is still expected to turn positive in the second quarter
of 2023.
After revisions, the risks to the medium-term domestic
growth outlook are assessed to be balanced. While negative
global shocks and load-shedding will continue to create
headwinds to growth, household spending and investment
are more supportive.
Commodity price movements in recent months have been
mixed. The export price of coal has increased alongside
oil, while prices for metals have declined. While oil prices
currently sit at around US$91 per barrel, we expect them to
stay higher than we did in July, and to average US$105 per
barrel for 2022, US$92 per barrel in 2023 and US$85 per
barrel in 2024.4
South Africa’s export commodity price basket has come
down from earlier peaks and is now forecast to rise by 2.3%
for the year as a whole (down from 3.2%) before falling in
2023 by about 17.6% and by a further 10.0% in 2024. As a
result of these export and import developments, the current
account balance is expected to register a surplus of 0.2% of
gross domestic product (GDP) this year, falling to a deficit of
1.0% in 2023 and 1.6% in 2024.5
Although near-term fiscal risk has eased on the back of better
tax revenue, financing conditions for rand-denominated
bonds have worsened. Ten-year bond yields currently trade
at about 11%.
Policy normalisation in major economies and the slowdown
in China have contributed to rand depreciation in recent
months. The implied starting point for the rand forecast is
R16.91 to the US dollar compared with R16.10 at the time of
the previous meeting.6
While economic growth is slowing globally, inflation
continues to surprise to the upside. Sustained policy
accommodation, supply shortages and other restrictions
have sharply increased the prices of many goods, services

OCTOBER 2022
and commodities.7 Producer price increases continue to
pass through to wages and consumer prices globally. Our
estimate for inflation in the Group of Three (G3) economies
is revised higher to 7.0% in 2022 (from 6.9%), up to 3.5% in
2023 (from 3.0%) and slightly higher at 2.1% in 2024.8
Since the previous meeting, the easing of global oil prices has
contributed to a less aggressive rise in fuel price inflation for
this year, at 33.7% (down from 38.8%). Further moderation
in fuel price inflation is expected in 2023, averaging 1.7%
(down from 5.7%). Local electricity price inflation is slightly
lower at 10.9% in 2022, 8.9% in 2023 and unchanged at
10.0% in 2024.
Despite the reduced global food price inflation, local food
price inflation is revised up and is now expected to be 8.1%
in 2022 (up from 7.4%). Food price inflation is revised lower
to 5.6% (down from 6.2%) in 2023 and remains unchanged
at 4.2% in 2024.
The SARB’s forecast of headline inflation for this year
remains unchanged at 6.5%. For 2023, headline inflation
is revised lower to 5.3% (from 5.7%) as a result of lower
food, fuel and core inflation forecasts for next year. Headline
inflation of 4.6% is expected in 2024 (down from 4.7%).
Our forecast for core inflation is unchanged at 4.3% in 2022
and lower than previously expected at 5.4% (from 5.6%) in
2023. The forecast for 2024 is also slightly lower at 4.8% (from
4.9%). Services price inflation remains broadly unchanged.
Core goods price inflation, however, is forecast lower in each
year, largely due to a lower starting point for vehicles and nonalcoholic beverages inflation.9 Average salaries are forecast
to rise by less than at the time of the July meeting, at 5.1% in
2022, 6.7% in 2023 and 5.6% in 2024.10
The risks to the inflation outlook are assessed to the upside.
While global producer price inflation and food inflation have
eased, Russia’s war in Ukraine continues, with adverse
effects on global prices. Oil prices increased strongly from
the start of the war, to around US$130 per barrel, and may
rise again from today’s level as stresses in energy markets
intensify. Electricity and other administered prices continue
to present clear medium-term risks. Given the below-

The United Nations (UN) Food and Agriculture Organization (FAO) food index declined sharply in July, falling by 8.6% month to month, largely on
the back of an agreement to reopen Black Sea ports. Consequently, the assumption used for the forecast for US dollar-denominated world food
prices in 2022 was revised lower from 22.3% to 17.8%.

The G3 comprises the US, the eurozone and Japan. The latest consumer price index (CPI) inflation in the respective components sits at 8.3%, 9.1%
and 3.0% respectively.

Core goods refers to total CPI goods excluding food and non-alcoholic beverages (NAB), fuel and energy, whereas services include all surveyed
services within the CPI basket. Core goods inflation is expected to be 4.8% in 2022 (down from 5.2%), 5.5% in 2023 (down from 5.9%) and 4.9%
in 2024 (down from 5.1%).
10 Average salaries were expected to be 5.6%, 7.3% and 5.7% respectively at the time of the July meeting.
11 The weighted average of G3 policy rates is forecast to be 3.1% in 2023 (up from 3.0%) and 3.2% in 2024 (up from 3.1%).
12 For 2024, the Bureau for Economic Research (BER) survey of inflation expectations in Q3 moderated to 5.4% (from 5.6%). The Q2 survey
had 2022 expected inflation at 6.0% and at 5.6% for 2023.
13 Market analysts (Reuters Econometer) in September, at the median, expect inflation to be higher at 6.7% (from 6.5% in July) in 2022, 5.4%
(from 5.0% in July) in 2023 and 4.6% (from 4.4% in July) in 2024.
14 Market-based rates are calculated from the break-even inflation rate, which is the yield differential between conventional and inflation-linked bonds.
These now sit at about 6.90% for the 5-year and 6.92% on the 10-year break-even. The 15-year break-even inflation sits at 7.0%.
inflation assumptions for public sector wage growth as well
as high petrol and food price inflation, considerable risk still
attaches to the forecast for average salaries.
Higher-than-expected inflation has pushed major central
banks to accelerate the normalisation of policy rates,
tightening global financial conditions and raising the risk
profiles of economies needing foreign capital. G3 interest
rate levels for the forecast period are now expected to
be somewhat higher than in July.11 On balance, and with
few exceptions, capital flows and market volatility will be
elevated for emerging market assets and currencies. The
rand has depreciated by about 3% to the US dollar since the
July meeting, and additional tightening of global conditions
will present further risks to the currency.
The risks to inflation identified over the past year have been
realised, pushing up South Africa’s headline inflation rate
and inflation expectations. Average surveyed expectations
of future inflation have increased to 6.5% for 2022 and
5.9% for 2023.12 Expectations for inflation based on market
surveys have increased to 6.7%.13 Long-term inflation
expectations derived from the break-even rates in the bond
market have moderated slightly to about 7%.14
In the second quarter of this year, headline inflation breached
the upper limit of the target range and is expected to remain
above it until the second quarter of 2023. By the fourth
quarter of 2024, we expect headline inflation to revert to the
midpoint of the target range on the back of declining fuel
and food inflation. The forecast takes into account the policy
rate trajectory indicated by the SARB’s Quarterly Projection
Model (QPM). As usual, the repurchase (repo) rate projection
from the QPM remains a broad policy guide, changing from
meeting to meeting in response to new data and risks.
Against this backdrop, the MPC decided to increase the
repo rate by 75 basis points to 6.25% per year with effect
from 23 September 2022. Three members of the MPC
preferred the announced increase; two members preferred
a 100 basis points increase.
The level of the repo rate is now closer to the level prevailing
before the start of the pandemic. The revised repo rate

OCTOBER 2022
path remains supportive of credit demand in the near term
while raising rates to levels more consistent with the current
view of inflation risks. The aim of policy is to anchor inflation
expectations more firmly around the midpoint of the target
band and to increase confidence of hitting the inflation target
in 2024.15
Guiding inflation back towards the midpoint of the target
band can reduce the economic costs of high inflation and
enable lower interest rates in the future. Achieving a prudent
public debt level, increasing the supply of energy, moderating
administered price inflation and keeping wage growth in line
with productivity gains would enhance the effectiveness of
monetary policy and its transmission to the broader economy.
Economic and financial conditions are expected to remain
more volatile for the foreseeable future. In this uncertain
environment, monetary policy decisions will continue to be
data-dependent and sensitive to the balance of risks to the
outlook. The MPC will seek to look through temporary price
shocks and focus on potential second-round effects and the
risks of de-anchoring inflation expectations. The SARB will
continue to closely monitor funding markets for stress.
15 The forecasted trajectory for the repurchase (repo) rate implies a rise
in the inflation-adjusted repo rate from -1.7% for 2021 to -1.7% for 2022,
1.4% for 2023 and 2.2% in 2024. The real repo rate calculation here is
based on the one-quarter-ahead inflation forecast and refers to annual
average rates.
Per cent

2017 2018 2019 2020 2021 2022 2023 2024
Repurchase rate forecast (September 2022)

90%

60%

30%

Repo rate

The uncertainty bands for the repo rate are based on historical
forecasting experience and stochastic simulations in the QPM. The
bands are symmetric and do not reflect any assessment of upside or
downside risk.
Source: SARB

OCTOBER 2022
Summary of assumptions: Monetary Policy Committee
meeting on 22 September 2022*
1. Foreign sector assumptions
Actual
Forecast

1. Real GDP growth in South Africa’s

2. Output gap in South Africa’s major trading-partner countries


3. Change in international commodity prices in US$

2. Domestic sector assumptions
Actual
Forecast


Notes
1.
Shaded areas indicate forecast assumptions.
2.
The figures in brackets represent the previous assumptions of the Monetary Policy Committee.
*
For an explanation of foreign sector assumptions and domestic sector assumptions, see pages 59 and 60.

OCTOBER 2022
Summary of selected forecast results: Monetary Policy Committee meeting
on 22 September 2022
Selected forecast results (annual)
Actual
Forecast


Notes
1.
The nominal effective exchange rate (NEER) is based on the bilateral exchange rates of South Africa’s three largest trading partners (the eurozone, the US
and Japan). The bilateral exchange rates are weighted by export trade weights.
2.
The real effective exchange rate (REER) is the NEER deflated by the consumer price differential between South Africa and the trade-weighted CPI of the eurozone,
the US and Japan.
3.
The real exchange rate gap signifies the extent to which the real exchange rate deviates from its estimated equilibrium level. A positive gap shows an overvaluation
of the currency, and vice versa.
4.
The forecast of the current account balance is obtained from the SARB’s Core Macroeconometric Model.
5.
Shaded areas indicate the forecasts of the Monetary Policy Committee.
6.
The figures in brackets represent the previous forecasts of the Monetary Policy Committee.
Selected forecast results (quarterly)
Year-on-year percentage change


1. Headline inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


2. Core inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Notes
1. Shaded areas indicate the forecasts of the Monetary Policy Committee.
2. The figures in brackets represent the previous forecasts of the Monetary Policy Committee.

OCTOBER 2022
Foreign sector assumptions
1. Trading-partner gross domestic product (GDP) growth
is broadly determined using the Global Projection Model
(GPM), which is adjusted to aggregate the GDP growth
rates of South Africa’s major trading partners on a tradeweighted basis. Individual projections are done for the
six largest trading partners, namely the eurozone, the
United States (US), the United Kingdom (UK), Japan,
China and India. Other countries considered, although
with small weights, are Brazil, Mexico and Russia. The
remaining trading partners are grouped into the ‘Rest
of Countries’ bloc. Since sub-Saharan Africa is also a
major trading region for South Africa (but does not have
a bloc in the GPM), it is modelled separately and then
combined with the aggregate of all the countries in the
GPM to make up total trading-partner growth.
2. As with GDP growth, the output gap is determined using
the GPM and is adjusted in a similar way. The output gap
is driven by a combination of country-specific domestic
factors, external factors and financial-real linkages
(beyond interest rate and exchange rate effects).
Domestic factors include expectations of future demand
and medium-term interest rates. External factors include
exchange rate impacts on demand, direct spillovers
through trade with trading-partner countries and
foreign demand.
3. The commodity price index is a weighted aggregate price
index of the major South African export commodities.
4. The Brent crude oil price is expressed in US dollars
per barrel. The assumption incorporates supply and
demand dynamics as well as oil inventories (of all grades).
The assumption is also informed by projections
from the US Energy Information Administration, the
Organization of the Petroleum Exporting Countries
(OPEC) and Reuters.
5. World food prices is the composite food price index
of the United Nations (UN) Food and Agriculture
Organization (FAO) in US dollars. It is weighted using
average export shares, and represents the monthly
change in the international prices of a basket of five
food commodity price indices (cereals, vegetable oil,
dairy, meat and sugar). World food price prospects
incorporate selected global institution forecasts for
food prices and imbalances from the anticipated trend
in international food supplies relative to expected food
demand pressures.
6. International consumer prices are also broadly
determined using the GPM. The index is an aggregate
of the consumer price indices of the eurozone, the US
and Japan, weighted by their relative trade shares.
Consumer prices are determined for each of these
economies by accounting for inflation expectations,
demand pressures and pass-through from changes in
the relevant exchange rate. Other institutional forecasts
for international consumer prices are also considered.
7. International policy interest rates are again broadly
determined using the GPM. Interest rates are a weighted
average of the policy rates of the eurozone, the US and
Japan. They are individually determined by a ‘Taylortype’ monetary policy rule. The communications of the
relevant central banks and other institutional forecasts
are also considered.

OCTOBER 2022
Domestic sector assumptions
1. The electricity price is an administered price measured
at the municipal level with a weight of 3.63% in the
headline consumer price index (CPI) basket. Electricity
price adjustments generally take place in the months of
July and August of each year, and the assumed pace of
increase over the forecast period reflects the multi-year
price determination agreement between Eskom and the
National Energy Regulator of South Africa (NERSA), with a
slight adjustment for measurement at the municipal level.
2. Fuel taxes and levies are the total domestic taxes and
costs included in the price of fuel paid at the pump. They
include the Road Accident Fund (RAF) levy, the fuel levy,
retail and wholesale margins, the slate levy and other minor
levies. The two major taxes, which are set by the Minister
of Finance in the annual National Budget, are the RAF levy
and the fuel levy. The income generated by the RAF levy is
utilised to compensate third-party victims of motor vehicle
accidents, while the fuel levy is used to provide funding for
road infrastructure.
3. Potential growth is derived from the South African Reserve
Bank’s (SARB) semi-structural potential output model.
The measurement accounts for the impact of the financial
cycle on real economic activity, and introduces economic
structure via the relationship between potential output
and capacity utilisation in the manufacturing sector (SARB
Working Paper Series No. WP/18/02).
4. The midpoint of the inflation target range is 4.5%.
The official inflation target range is 3–6%.
5. The neutral real interest rate (NRIR) is the interest rate
consistent with stable inflation and output in line with
the economy’s potential. This variable is the basis for
judging whether a given policy stance is expansionary,
contractionary or neutral.

OCTOBER 2022
Glossary
Advanced economies: Advanced economies are countries
with high gross domestic product (GDP) per capita,
diversified exports and close integration into the global
financial system.
Balance of payments: This is a record of transactions
between the home country and the rest of the world over a
specific period of time. It includes the current and financial
accounts. See also ‘Current account’ below.
Brent crude: Brent crude is a light and sweet blend of oil from
five different fields in the North Sea. The price of Brent crude
is one of the benchmark oil prices in international markets.
Budget deficit: A budget deficit indicates the extent to which
government expenditure exceeds government revenue.
Business and consumer confidence: These are economic
indicators that measure the level of optimism about
the economy and its prospects among business managers
and consumers.
Commodities: Commodities can refer to energy, agriculture,
metals and minerals. Major South African-produced
commodities include platinum and gold.
Consumer price index (CPI): The CPI provides an indication
of aggregate price changes in the domestic economy.
The index is calculated using a number of categories
forming a representative set of goods and services bought
by consumers.
Core inflation: Core generally refers to underlying inflation,
excluding the volatile elements (e.g. food and energy
prices). The South African Reserve Bank’s (SARB) forecasts
and discussions refer to headline CPI excluding food,
non-alcoholic beverages (NAB), fuel and electricity prices.
Crude oil price: This is the United States (US) dollar price
per barrel of unrefined oil. See also ‘Brent crude’ above.
Current account: The current account of the balance of
payments consists of net exports (exports less imports)
in the trade account as well as the services, income and
current transfers.
Emerging markets: Emerging markets are countries with
low to middle income per capita. They are advancing
rapidly and are integrating with global (product and
capital) markets.
Exchange rate depreciation (appreciation): Exchange rate
depreciation (appreciation) refers to a decrease (increase) in
the value of a currency relative to another currency.
Exchange rate pass-through: This is the effect of exchange
rate changes on domestic inflation (i.e. the percentage
change in domestic CPI due to a change in the exchange
rate). Changes in the exchange rate affect import prices,
which in turn affect domestic consumer prices and inflation.
Forecast horizon: This is the future period over which the
SARB generates its forecasts, typically between two and
three years.
Gross domestic product (GDP): GDP is the total market
value of all the goods and services produced in a country. It
includes total consumption expenditure, capital formation,
government consumption expenditure and the value of
exports less the value of imports.
Gross fixed capital formation (investment): The value of
acquisitions of capital goods (e.g. machinery, equipment
and buildings) by firms, adjusted for disposals, constitutes
gross fixed capital formation.
Headline consumer price index (CPI): Headline CPI refers
to CPI for all urban areas, as measured on a monthly basis
by Statistics South Africa (Stats SA). Headline CPI is a
measure of price levels in all urban areas. The 12-month
percentage change in headline CPI is referred to as ‘headline
CPI inflation’ and reflects changes in the cost of living. This
is the official inflation measure for South Africa.
Household consumption: This is the amount of money
spent by households on consumer goods and services.
Inflation (growth) outlook: This outlook refers to the evolution
of future inflation (growth) over the forecast horizon.
Inflation targeting: This is a monetary policy framework
used by central banks to steer actual inflation towards an
inflation target level or range.
Monetary policy normalisation: This refers to the unwinding
of an unusually accommodative monetary policy. It could
also mean adjusting the economy’s policy rate towards its
real neutral policy rate.
Neutral real interest rate (NRIR): The NRIR is the level at
which the real interest rate will settle once the output gap is
closed and inflation is stable.
Nominal effective exchange rate (NEER): The NEER
is an index that expresses the value of a country’s
currency relative to a basket of other (trading-partner)
currencies. An increase (decrease) in the NEER indicates
a strengthening (weakening) of the domestic currency with
respect to the selected basket of currencies. The weighted
average exchange rate of the rand is calculated against
20 currencies. The weights of the five major currencies are
as follows: the euro (30.68%), the Chinese yuan (24.53%),

OCTOBER 2022
the US dollar (10.56%), the Japanese yen (4.95%) and the
Indian rupee (4.85%). Index: 2015 = 100. See also ‘Real
effective exchange rate’ below.
Output gap/potential growth: Potential growth is the rate
of GDP growth that could theoretically be achieved if all the
productive assets in the economy were employed in a stable
inflation environment. The output gap is the difference between
actual growth and potential growth, which accumulates over
time. If this is negative, then the economy is viewed to be
underperforming and demand pressures on inflation are low.
If the output gap is positive, the economy is viewed to be
overheating and demand pressures are inflationary.
Policy rate: A policy rate is the interest rate used by a central
bank to implement monetary policy.
Productivity: Productivity indicates the amount of goods and
services produced in relation to the resources utilised in the
form of labour and capital.
Real effective exchange rate (REER): The REER is the NEER
adjusted for inflation differentials between South Africa and its
main trading partners. See also ‘Nominal effective exchange
rate’ above.
Repurchase (repo) rate: This is the policy rate that is set
by the Monetary Policy Committee (MPC). It is the rate that
commercial banks pay to borrow money from the SARB.
Real repo rate: This is the nominal repo rate, as set by the
MPC, adjusted for expected inflation.
Terms of trade: This refers to the ratio of export prices to
import prices.
Unit labour cost (ULC): A ULC is the labour cost to produce
one ‘unit’ of output. This is calculated as the total wages
and salaries in the non-agricultural sector divided by the real
value added at basic prices in the non-agricultural sector of
the economy.

OCTOBER 2022
Abbreviations
Alsi
All-Share Index
BER
Bureau for Economic Research
BoE
Bank of England
BRICS
Brazil, Russia, India, China, South Africa
CAR
capital adequacy ratio
CCI
Consumer Confidence Index
CI
Currency Index
CMS
Council for Medical Schemes
CPD
Corporation for Public Deposits
CPI
consumer price index
CSI
China Securities Index
ECB
European Central Bank
EM
emerging market
EU
European Union
FAO
Food and Agriculture Organization
Fed
United States Federal Reserve
FNB
First National Bank
fob
free-on-board
FX
foreign exchange
G3
Group of Three (United States, eurozone and Japan)
GDP
gross domestic product
GFC
global financial crisis
GFCF
gross fixed capital formation
GPM
Global Projection Model
GWh
Gigawatt hours
Haver
Haver Analytics
HCE
household consumption expenditure
IMF
International Monetary Fund
JSE
JSE Limited
LCR
liquidity coverage ratio
MFN
most favoured nation
MPC
Monetary Policy Committee
MPIF
monetary policy implementation framework
MPR
Monetary Policy Review
MTEF
Medium-Term Expenditure Framework
MW
Megawatt

OCTOBER 2022
NAB
non-alcoholic beverages
NEER
nominal effective exchange rate
NERSA
National Energy Regulator of South Africa
NRIR
neutral real interest rate
OECD
Organisation for Economic Co-operation and Development
OPEC
Organization of the Petroleum Exporting Countries
PPI
producer price index
PRISM
Policy Research on International Services and Manufacturing
QLFS
Quarterly Labour Force Survey
QPM
Quarterly Projection Model
RAF
Road Accident Fund
REER
real effective exchange rate
REIPPP
Renewable Energy Independent Power Producer Procurement (Programme)
repo (rate)
repurchase (rate)
rhs
right-hand scale
SARB
South African Reserve Bank
SARS
South African Revenue Service
SF
standing facility
SIT
services, income and transfers (account)
SOE
state-owned enterprise
S&P
Standard & Poor’s
SSA
sub-Saharan Africa
Stats SA
Statistics South Africa
TIPS
Trade and Industrial Policy Strategies
UIP
uncovered interest rate parity
UK
United Kingdom
ULC
unit labour cost
UN
United Nations
US
United States
WEO
World Economic Outlook
WEO Update
World Economic Outlook Update