MPC Statement 23 November 2023


PRESS STATEMENT
23 November 2023


STATEMENT OF THE MONETARY POLICY COMMITTEE

Issued by Lesetja Kganyago, Governor of the South African Reserve Bank
As we approach the end of the year, easing headline inflation and modest economic
growth remain the dominant global economic trends of this past year. Output in the
Euro Area is poor, while the robust growth seen in North America is likely to moderate.
China’s growth performance is still weak, with few benefits for global commodity
prices.1 Across most regions, monetary policy will continue to focus on achieving
inflation targets, while high debt levels will require fiscal consolidation efforts. In the
developing world, financing conditions are expected to remain tight and growth
moderate.
The longer-term economic outlook however, remains uncertain. Weaker household
consumption and falling property prices may drag on growth for a sustained period.
Climate change and geopolitical tensions threaten supply chains, output and prices.

1 South Africa’s commodity export index is forecast to decline by 27.9% this year, a further 11.5% in 2024, and
an additional 5.0% in 2025. The index is forecast to fall by 1.7% in 2026.
MPC Statement 23 November 2023


With high interest rates and uncertainty, financial markets and asset prices are
expected to remain volatile, dampening investor appetite and capital flows.
Taking these and other factors into account, the SARB’s forecast for global growth in
2023 is broadly unchanged at 2.7% (from 2.6%), and 2.6% in 2024.2
While South Africa’s electricity load-shedding has declined, domestic growth in the
near term is likely to remain muted. Energy and logistical constraints are still binding
on economic activity and generally increase costs.3 We expect electricity supply to
increase gradually over the medium-term however, helping to raise our forecast for
output growth in 2024, 2025 and 2026.
Spending by firms, households, public corporations and general government remains
positive in real terms, on an annual basis. Disposable income of households is
expected to grow, albeit slowly. The investment forecast for the year was revised up
to 7.7% in September. Credit growth to households and corporates has slowed in
recent months, but remains positive. 4
GDP growth for 2023 is revised slightly upward to 0.8% from the September figure of
0.7%. Our GDP growth forecast for 2024 and 2025 is increased from the previous

2 Global growth in the QPM model is a trade-weighted average of South Africa’s trading partners.
3 The number of days of expected load-shedding is 300 in 2023, decreasing to 150 days and 100 days,
respectively in 2024, and 2025. Estimates of the average stages of load-shedding is multiplied by the number
of days and then multiplied by the cost to GDP per stage-day. The cost per stage was revised lower in the
March 2023 MPC meeting. In nominal terms, these costs vary between R0-R1.2 million for stages 1 and 2 and
up to R204-R899 million for stages 3 to 6, when continued on a 24 hour basis on weekdays. This will be
assessed further as new data and information is received.
4 Although growth in the claims on the domestic private sector has slowed from 8.4% y-o-y in January 2023, to
only 4.6% yoy in September, real credit extension for the year to September is 0.3% above the average for
calendar 2022.
MPC Statement 23 November 2023


meeting, to 1.2% and 1.3%, respectively, in large part due to an expected decrease in
load-shedding.5
While households and firms exhibit some resilience, economic growth has been
volatile and highly sensitive to new shocks. A sustained reduction in load-shedding,
or greater energy supply from alternative sources, would significantly increase growth.
The operation of ports and rail however have become a serious constraint.
At present, we assess the risks to the medium-term domestic growth outlook to be
balanced, as demand continues to run ahead of the constrained supply environment.
As a result, our current growth forecast leaves the output gap marginally positive.6
Turning to the inflation outlook, South Africa’s headline inflation rate has increased
more gradually than in many other emerging and advanced economies. Nonetheless,
South Africa’s inflation rate remains sensitive to shocks.
While volatile in recent weeks, oil prices have increased over the year and commodity
export prices have moderated further. South Africa’s external financing needs will
increase as the current account deficit expands from a forecasted 1.3% of GDP this
year (from 2.0%), to 2.6% of GDP in 2024 and to 3.5% of GDP in 2025.7 The smaller
deficit this year is the result of significantly better than expected trade outcomes in the
third quarter.8

5 The growth forecast includes expected changes in the policy rate as given by the QPM.
6 Potential growth is 0.1% in 2023 (up from 0.0%) and rising to 1.0% for 2024, 1.2% for 2025, and 1.6% in 2026.
7 The current account deficit in 2026 is forecast to be -4.0% of GDP. Exports are forecast to grow in real terms
by 4.8% this year (from 4.5%) and 2.9% in 2024. Our oil price forecast is higher than in September, averaging
US$84 per barrel in 2023 and in 2024, before easing to US$82 for 2025 and US$80 for 2026.
8 Agricultural exports and vehicle and parts exports were up, while there was a sharp drop in machinery and electrical
goods imports.
MPC Statement 23 November 2023


The rand weakened over the past year, depreciating by about 9.5% against the US
dollar. The lack of sustained economic growth and dependence on commodities is
reflected in the high volatility of the currency in response to global risk-on and risk-off
episodes. The implied starting point for the rand forecast is R18.76 to the US dollar,
compared to R18.45 at the time of previous meeting.
Compared to September, fuel price inflation is broadly unchanged for 2023, but
lowered from 5.8% to 3.2% in 2024.
Our food price inflation forecast for 2023 remains high at 10.6% (from 10.4%). The
forecast for 2024 is slightly higher at 5.5%.
Better monthly outcomes have led to a marginal downward revision in our forecast for
core inflation to 4.8% in 2023 (previously 4.9%) and to 4.6% in 2024 (from 4.7%). The
core inflation forecast for 2025 remains at 4.5%. The new 2026 core forecast is also
4.5%. Services inflation in 2023 is now expected to come in at 4.3% (from 4.4%),
before rising to 4.8% in 2024 (up from 4.6%). Core goods inflation remains elevated
but is revised lower for this year to 6.0% (from 6.3%).9 Growth in average salaries and
unit labour costs is forecast to be somewhat lower than at the time of the September
meeting.10

9 Core goods refers to total CPI goods excluding food and NAB, fuel and electricity, whereas services include all
surveyed services within the CPI basket. Core goods inflation is expected to be 4.5% in 2024, 4.4% in 2025, and
4.5% in 2026.
10 Average salaries are expected to rise by 4.6% in 2023 (down from 5.4), 6.0% in 2024, and by 5.4% in 2025
and in 2026. Unit labour costs are forecast to rise by 4.6%, 4.5% and 4.4%, respectively, in 2023, 2024, and
2025. In 2026, unit labour costs are forecast to increase by 4.3%.
MPC Statement 23 November 2023


With few significant changes to underlying components, headline inflation for 2023 is
revised down slightly to 5.8% (from 5.9%). The headline inflation forecast for 2024 is
5.0% (down from 5.1%), before stabilising at 4.5% in 2025 and 2026.
While our baseline inflation forecast has improved, risks to the inflation outlook are still
assessed to the upside.
Even as global headline inflation moderates, oil markets are tight and core inflation is
sticky. Despite recent easing in some food price components, domestic food price
inflation remains volatile, and increased in October to 8.7%. El Niño conditions present
longer-term concerns. Imported goods inflation has increased over the year, and
despite some better recent outcomes, remains sensitive to currency weakness.
Electricity prices continue to present clear inflation risks, and with logistics constraints,
are likely to have broader effects on the cost of doing business and the cost of living.
Given uncertain fuel and food price inflation, considerable risk still attaches to the
forecast for average salaries.
Sticky inflation implies that average policy rates in G3 economies will remain high, at
about 4.3% in 2024 compared to the 1.1% average rate seen in 2022.11 These tighter
global financial conditions will raise the risk profile of economies needing foreign
capital. Sharply lower tax revenue, higher employee compensation and ongoing
financing needs of state-owned enterprises are expected to keep South Africa’s longterm cost of borrowing elevated. Despite an expected moderation in inflation, longterm bond yields currently trade around 12%.

11 G3 interest rates average 3.9% in 2023, 4.3% in 2024, and significantly higher at 3.4% in 2025 (up from
2.8%).
MPC Statement 23 November 2023


Higher inflation has generally resulted in elevated inflation expectations across
markets, businesses and households. Market-based expectations for inflation in 2023
are currently 5.8%, while near-term break-even rates have dipped to 4.3%.12 Medium
and longer-term market expectations for inflation remain elevated. The September
survey of the Bureau for Economic Research shows average inflation expectations
lower at 6.1% for 2023. The Committee, however, would prefer to see expectations
anchored at the mid-point of the inflation target band.13
Against this backdrop, the MPC decided to keep the repurchase rate at its current level
of 8.25% per year. The decision was unanimous.
At the current repurchase rate level, policy is restrictive, consistent with the inflation
outlook and elevated inflation expectations. Serious upside risks to the inflation outlook
remain. In light of these risks, the Committee remains vigilant and stands ready to act
should risks begin to materialise. Decisions will continue to be data dependent and
sensitive to the balance of risks to the outlook. The inflation and repo rate projections
from the updated QPM remain a broad policy guide, changing from meeting to meeting
in response to new data and risks.
The policy stance aims to anchor inflation expectations more firmly around the midpoint of the target band and to increase confidence of attaining the inflation target
sustainably over time.14 The MPC will seek to look through temporary price shocks

12 At the median, market analysts (Reuters Econometer) in November expect inflation to average 5.8% in
2023, 4.9% in 2024 and 4.6% in 2025. Market-based rates are calculated from the break-even inflation rate,
which is the yield differential between conventional and inflation-linked bonds. The 10-year breakeven now
sits at about 6.1%. The 20-year break-even inflation rate sits at 7.2%.
13 The BER Q3 2023 survey of inflation expectations indicated inflation at 6.1% in 2023 (from 6.5% in Q2) and
5.5% for 2024 (from 5.9% in Q2) and 5.3% in 2025. The Bureau’s next release is the second week of December.
14 The forecasted trajectory for the repurchase rate implies a rise in the inflation-adjusted repo rate from -1.3%
in 2022, to 2.7% in 2023, and 3.2% in 2024. The real repo level for 2025 is expected to be 2.9%. The real
MPC Statement 23 November 2023


and focus on potential second round effects and the risks of de-anchoring inflation
expectations.
Guiding inflation back towards the mid-point of the target band reduces the economic
costs of high inflation and will achieve lower interest rates in the future. Since early
2020, the Committee has recommended additional means of lowering inflation that are
within the reach of the public sector, including achieving a prudent public debt level,
increasing the supply of energy, keeping administered price inflation low and real wage
growth in line with productivity gains. Such steps would strengthen monetary policy
effectiveness and its transmission to the broader economy.
Lesetja Kganyago
GOVERNOR
The next statement of the Monetary Policy Committee will be released on 25
January 2024.

The MPC dates for 2024 are:
25 January
27 March
30 May
18 July
19 September
21 November

Contact person:
Thoraya Pandy
0824168416


repurchase rates calculated here are based on the 3-quarter ahead inflation forecast and are annual average
rates.