Monetary Policy Committee forecast report
March 2024 MPC meeting
27 March 2024
Summary of assumptions March 2024 MPC
* Figures below the assumption in parentheses represents the previous MPC
assumption
1. Foreign sector assumptions
Percentage changes
(unless otherwise indicated)
Actual
Forecast

1.
Real GDP growth in South Africa's major trading partner countries

Output gap in South Africa's major trading partner countries

International commodity prices in US$

Brent crude (US$/barrel)
$41.8
$70.7
$100.4
$82.6
$82.0
$81.0
$80.0
($41.8)
($70.7)
($100.4)
($82.6)
($82.0)
($81.0)
($80.0)
5.
World food prices (US$ )

International consumer prices (G3)

International policy interest rate (G3)

2. Domestic sector assumptions
Percentage changes
(unless otherwise indicated)
Actual
Forecast

1.
Fuel taxes, levies and margins

Potential growth

Inflation target midpoint

Foreign Sector Assumptions
1. Trading partner GDP growth: is broadly determined via the Global Projection Model “GPM” which is adjusted to aggregate the GDP growth rates of South Africa’s major trading partners on a trade weighted basis. Individual projections are done for the six largest trading partners (Eurozone, China, United States,
Japan, Great Britain and India). Other countries considered, although with small weights, are Mexico, Brazil and Russia. The remaining trading partners are grouped into the Rest of Countries bloc. Since Sub-Saharan Africa (SSA) is also a major trading region for South Africa (but does not have a bloc in the GPM),
it is modelled separately then combined with the aggregate of all countries in the GPM to make up total trading partner GDP growth. The assumption takes account of country specific “consensus” forecasts as well as regional growth prospects.
2. Commodity price index (excludes oil but includes petroleum products): is a weighted aggregate price index (2015 = 100) of the major South African export commodities based on 2019 export basket weights.
3. International consumer prices: are also broadly determined via the GPM, the index is an aggregate of the consumer price indices of the G3 countries (euro area, United States and Japan) weighted by their global trade-export weights. Consumer prices are determined for each region discussed above by
accounting for expected future price inflation, demand pressures, and pass-through from changes in the relevant exchange rate. Other institutional forecasts for international consumer prices are also considered.
4. International policy interest rate: is again broadly determined via the GPM. Interest rates are an aggregate of the policy rates of the G3 countries (euro area, United States and Japan). They are individually determined by a “Taylor-type” monetary policy rule. The communications of the relevant central banks and
other institutional forecasts are also considered.

Summary of selected QPM forecast results March 2024 MPC
* Figures below the forecast in parentheses represents the previous MPC forecast
1. Selected forecast results (quarterly)
Percentage change
(year-on-year)
Actual
Forecast
22Q1
22Q2
22Q3
22Q4

23Q1
23Q2
23Q3
23Q4

24Q1
24Q2
24Q3
24Q4

25Q1
25Q2
25Q3
25Q4

26Q1
26Q2
26Q3
26Q4

Steady state
1.
Headline CPI

Core CPI

Food CPI

Fuel CPI

Electricity CPI

2. Selected forecast results (annual)
Percentage changes
(unless otherwise indicated)
Actual
Forecast

Steady state
1.
GDP growth

Output gap

Nominal effective exchange rate

Real effective exchange rate

Repurchase rate

(end of period i.e. fourth quarter)

Neutral real interest rate

Current account balance

(ratio to GDP)

Notes
A. Nominal effective exchange rate: This is based on the bilateral exchange rates of our three largest trading partners (euro area, United States and Japan). The bilateral exchange rates are weighted by export trade weights.
A. Nominal effective exchange rate: This is based on the bilateral exchange rates of our three largest trading partners (euro area, United States and Japan). The bilateral exchange rates are weighted by export trade weights.
B. Nominal exchange rate steady state: This is estimated using the Purchasing Power Parity (PPP) condition, which links the depreciation of the nominal exchange rate to the inflation differential between SA and abroad. Given that the REER depreciation is zero at steady state, the nominal exchange rate will therefore depreciate
by 2.5% per year in steady state, reflecting the inflation (target) differential between domestic (4.5%) and foreign (2.0%) inflation.
B. Nominal exchange rate steady state: This is estimated using the Purchasing Power Parity (PPP) condition, which links the depreciation of the nominal exchange rate to the inflation differential between SA and abroad. Given that the REER depreciation is zero at steady state, the nominal exchange rate will therefore depreciate
C. Real effective exchange rate: This is the nominal effective exchange rate deflated by the consumer price differential (between South Africa and the trade weighted CPI of euro area, United States and Japan).
C. Real effective exchange rate: This is the nominal effective exchange rate deflated by the consumer price differential (between South Africa and the trade weighted CPI of euro area, United States and Japan).
D. Repurchase rate: End of period refers to the average repo rate for the last quarter of the year. The nominal repo rate steady state is calculated as the sum of SA inflation target (4.5%) and the steady state neutral real interest rate (2.5%).
D. Repurchase rate: End of period refers to the average repo rate for the last quarter of the year. The nominal repo rate steady state is calculated as the sum of SA inflation target (4.5%) and the steady state neutral real interest rate (2.5%).
E. Neutral real interest rate (NRIR): The NRIR is the policy rate, minus inflation, which prevails when the economy is fully in balance, with inflation at target and output at potential. The policy stance is measured as either tight or loose based on whether actual rates are above or below this neutral rate, respectively. The steady state
NRIR is calculated as the sum of the respective steady states for the G3 neutral real interest rate (0.5%), South Africa’s risk premium (2.0%), and the change in the real effective exchange rate REER (0.0%). Before the steady state is reached it is possible for the REER equilibrium to appreciate or depreciate, so this value can have
a non-zero value over the medium term. It is nonetheless always zero in the long run.
E. Neutral real interest rate (NRIR): The NRIR is the policy rate, minus inflation, which prevails when the economy is fully in balance, with inflation at target and output at potential. The policy stance is measured as either tight or loose based on whether actual rates are above or below this neutral rate, respectively. The steady state
F. Steady state: This is the long run value in the model. While model equilibriums can have different values over the medium term, as conditions change, all equilibriums eventually reach a steady state, where they stabilise. For more details on the estimation of steady states, see Botha, De Jager, Ruch and Steinbarg (2017) - South
African Reserve Bank Working Paper Series No. WP/17/01.
F. Steady state: This is the long run value in the model. While model equilibriums can have different values over the medium term, as conditions change, all equilibriums eventually reach a steady state, where they stabilise. For more details on the estimation of steady states, see Botha, De Jager, Ruch and Steinbarg (2017) - South
G. Current account balance as a percentage of GDP:
Forecast is obtained from the SARB's Core macroeconometric model.
G. Current account balance as a percentage of GDP:
Forecast is obtained from the SARB's Core macroeconometric model.

Repurchase rate*
Per cent
90%
60%
30%
Repo rate
*The uncertainty bands for the repo rate are based on historical forecasting experience and stochastic
simulations in the Quarterly Projection Model (QPM). The bands are symmetric, and therefore do not reflect any
assessment of upside or downside risk. For details on the QPM see 'Enhancing the Quarterly Projection Model',
South African Reserve Bank Working Paper Series No. WP/23/05, June 2023.
Interest rate forecast