MONETARY POLICY
REVIEW
APRIL 2023
APRIL 2023
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ISSN: 1609-3194
Printed by the Publishing Section of the South African Reserve Bank
APRIL 2023
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.
The MPR is presented by senior officials of the SARB at Monetary Policy Forum meetings held at major centres across South
Africa, in an effort to develop a better understanding of monetary policy through direct interactions with stakeholders.
Questions about the publication may be directed to Marlene Hugo at
APRIL 2023
Contents
After shocks

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

APRIL 2023
After shocks
Executive summary and
overview of the policy stance
Amid high and persistent domestic inflation risks and rising
inflation expectations, the Monetary Policy Committee (MPC)
raised the repurchase (repo) rate by a cumulative 150 basis
points over the past three MPC meetings, bringing the nominal
repo rate to 7.75%. Headline inflation remained elevated at
7.1% in March 2023, and is forecast to average 6.0% this
year and 4.9% in 2024, compared with 6.9% in 2022. Global
inflation has remained markedly higher than expected and is
projected to remain above central bank targets into 2024,
despite considerable efforts to normalise monetary policy. After
slowing to 2.0% in 2022, domestic growth is forecast to decline
steeply to 0.2% in 2023 before rising gradually to 1.1% in 2025,
reflecting the country’s severely binding electricity supply
constraints. Ensuring an adequate supply of energy, reducing
debt and aligning administered prices with the inflation target
will enhance the transmission of monetary policy and lower
inflation pressures.
The aftershocks of the COVID-19 pandemic continue to
reverberate through the world economy, evidenced by the
world’s stagflationary conditions. The pandemic and the policy
responses it engendered, together with disruptions to global
oil and food supply chains due to Russia’s war in Ukraine,
gave rise to the worst inflation surge witnessed in more than
a generation. The imbalances between demand and supply
were first seen in goods markets and then spilled over into
services before embedding in global and national labour
markets, and are yet to fully resolve.1 Central banks across
the world have responded with tighter policy in an effort to
stem the spread of inflation.
Global inflation peaked around the middle of 2022.2
The gradual deceleration since then reflects moderating oil
and food prices, supply constraints and commodity prices
normalising, as well as the demand cooling effects of fiscal
and monetary restraint. Inflation, however, remains well
above central bank targets and shows signs of persistence
in several sectors. The baseline scenario is for global inflation
to continue its gradual moderation, from 8.7% in 2022
to 7.0% in 2023 and 4.9% in 2024.3 Core inflation, which
strips out volatile energy and food prices, also remains well
above countries’ inflation targets and labour markets remain
buoyant, particularly in advanced economies.
1 These imbalances reflect in, among other things, labour markets that
remain tight and services inflation that is still elevated in some
advanced economies.
2 International Monetary Fund (IMF), World Economic Outlook (WEO),
April 2023.
3 IMF, WEO, April 2023.
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

Percentage change over four quarters
-2

G3 inflation

Eurozone headline

Eurozone core

US personal consumption expenditure

US core

Japan headline

Japan core

Source: Haver
Ratio
Ratio of unfilled vacancies to unemployment

US
Japan
UK
Germany
Sources: Bloomberg and Haver

Latest

Average for 2010s

APRIL 2023
Global output is expected to remain soft through 2023.
However, recent data from advanced economies, particularly
the United States (US) and eurozone, showed resilience in
consumer spending and less binding energy constraints in
the eurozone during the past winter. Growth in China is also
forecast higher for the current year following the country’s
relaxation of its zero-COVID policy. The South African Reserve
Bank (SARB) now expects trading-partner growth to reach
2.0% in 2023 and to rise to 2.5% in 2024 and further to 3.1% in
2025, ending the forecast period closer to the pre-pandemic
growth trend.4
In addition to moderating growth, rising interest rates have
triggered banking sector stresses in the US and eurozone.
This episode has heightened uncertainty around the path for
the US Federal Reserve’s (Fed) federal funds rate in the near
term and added to volatility in financial markets. Nonetheless,
credit conditions are expected to tighten further as markets
and financial institutions readjust their portfolios.
The various interacting determinants of the current inflation
surge suggest that complex cyclical and structural forces are at
work presenting difficult challenges to monetary policymaking
globally. Policymakers have raised interest rates in anticipation
of spillovers and second-round effects to prevent inflation
expectations from de-anchoring. The sharp increases in
global policy rates, particularly the Fed rate hikes, sharply
strengthened the US dollar, depreciated emerging market
currencies and, alongside high global inflation, increased
imported inflation.5
As global financial conditions have tightened, portfolio flows
have become more sensitive to risk-adjusted real interest
rate differentials, in turn affecting the availability and cost
of external funding, particularly for emerging markets and
developing economies (EMDEs) with large external financing
requirements. Because interest rates are expected to remain
elevated for some time, highly indebted EMDEs will require
strong fiscal consolidations over the coming years to bring
debt levels down to sustainable levels. Reducing fiscal risk
can enhance the transmission and effectiveness of monetary
policy and facilitate the achievement of lower inflation.
Domestic economic outlook
Parallel to the global economic trend, gross domestic product
(GDP) growth slowed sharply in the domestic economy in
2022, registering 2.0%, down from 4.9% in 2021. While the
slowdown in part reflects the return to trend growth following
4 The SARB had projected trading-partner growth for 2023 to decline
to 1.6% at the January 2023 MPC meeting.
5 Sharply rising global interest rates (Fed hikes) open a potential channel
for global monetary policy to influence domestic policy in emerging
markets as they widen the real interest rate differential relative to
advanced economies. That, in turn, affects the real exchange rate gap.
However, for countries like South Africa, the real exchange rate gap is
driven mostly by domestic idiosyncrasies; hence, the influence of Fed
rate hikes on domestic policy is difficult to quantify, but likely to be small.
-4
-2

Percentage change
Global growth*

Source: SARB

Sep 2022

Mar 2023
Forecast
* Real GDP growth in SA’s major trading-partner countries
Percentage of GDP
Index

Emerging market currencies/debt level*
Sources: IMF Fiscal Monitor and JPMorgan

EM debt-to-GDP ratio

JPMorgan EM currency index (rhs)
* Dotted lines indicate forecasts

Percentage change from quarter to quarter
Real gross domestic product*
Sources: Stats SA and SARB

Q1
Q2
Q3
Q4
Forecast
* Seasonally adjusted

Q1
Q2

APRIL 2023
the 2021 rebound from the pandemic-induced recession of
2020, various headwinds and shocks have caused output to
swing wildly from quarter to quarter.6 Much slower growth of
about 0.2% is projected for the first and second quarters of
this year.
South Africa’s recovery from the COVID-19 pandemic saw
production bounce back strongly as the pandemic restrictions
were eased, supported by robust export performance amid
subdued imports. Economic growth has, however, slowed
since the beginning of 2022 as load-shedding intensified.
Meanwhile, investment and household spending have
remained relatively robust, resulting in domestic expenditure
exceeding domestic output, and pulling in more imports.
Alongside the weakening terms of trade, rising imports have
dragged the current account into deficit.
The labour market has continued to show signs of recovery
over the past year. The economy has realised employment
gains on a quarter-on-quarter basis since the third quarter of
2021. This resulted in unemployment declining to 32.7% in the
fourth quarter of 2022 after peaking at 35.3% a year earlier.
The ongoing failure of certain parts of public infrastructure,
especially electricity, will continue to constrain growth over the
medium term. Although investment should support growth, it
is not expected to increase by much year on year given the
difficult operating environment. Household spending is also
expected to grow modestly as consumers face pressures
from higher inflation and rising interest rates. Some reprieve
is, however, expected as inflation moderates over the forecast
horizon, amid rising nominal wages.7 Meanwhile, slower global
growth, alongside elevated domestic logistical constraints,
suggests that exports will remain weak, while government
consumption is expected to remain subdued in line with the
announced fiscal consolidation framework.
The SARB now projects the economy to grow by about 0.2%
in the current year, rising gradually to 1.1% in 2025. Potential
growth is estimated to be very low in 2022 and to rise modestly
to 1.0% in 2025, reflecting a projected gradual relaxation in the
energy constraint over the forecast horizon.
6 GDP growth swung from 1.6% in the first quarter of 2022 to -0.8% in the
second quarter, and then jumped to 1.8% in the third quarter before
slumping to -1.3% in the fourth quarter. The second-quarter decline was
largely a result of the floods in KwaZulu-Natal in April 2022, while that
in the fourth quarter was mainly due to extreme load-shedding during
the quarter.
7 Household spending is projected to grow at 0.6% in 2023 and rise
to 0.9% in 2025 – a sharp moderation compared with the 2.6%
growth in 2022.
Per cent
Electricity outages and energy availability factor
Source: Eskom

Total unplanned outages

Planned outages

Energy availability factor

Millions
Per cent
Labour market trends
Source: Stats SA

Employed

Unemployment rate (rhs)

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


APRIL 2023
In the absence of the above-mentioned adverse shocks,
domestic output in 2022 could have edged closer to 3.0%.
The SARB’s estimates suggest that load-shedding alone
shaved off 0.7 percentage points from growth in 2022.
As the economy adjusts to the electricity constraint and
lower overall growth, the current account and fiscal balances
are likely to deteriorate.
Slowing growth and declining revenue windfalls are expected
to result in increased public sector dissaving and rising public
debt. This, together with the recent above-inflation escalation
in the public sector wage bill, could result in a level shift in
the equilibrium risk premium. With household saving declining
and corporate investment increasing, South Africa’s need for
foreign savings rises, exerting downward pressure on the rand.
The weaker rand exchange rate and elevated global goods
prices explain much of the inflation surge in the domestic
economy over the past year. Headline inflation climbed to a
13-year high of 7.8% in July 2022 but moderated to 7.1% in
March 2023, reflecting the marked decrease in fuel inflation
from the highs observed in 2022. Projections at the March
2023 MPC meeting show headline inflation returning to the
target range in the third quarter of this year, but to the midpoint
of the target range only in 2025. However, risks are to the
upside. Domestic food inflation has yet to peak, despite the
strong disinflation in global food prices. This indicates that the
combined effect of a weaker rand and idiosyncratic domestic
factors, such as foot and mouth disease, have dominated food
inflation dynamics. Load-shedding is also expected to add
materially to headline inflation (0.5 percentage points in 2023)
as the costs associated with back-up energy solutions are
passed on to consumers (Box 1), while additional pressures
emanate from the sharp increase in electricity prices for the
2023/24 cycle.
Underlying inflation, as measured by core and trimmed mean
inflation, has risen strongly over the past year and has, over the
past five months, bounced around in the 5–6% range.8 Core
inflation, in particular, is expected to remain sticky over the
medium term, peaking at 5.3% in the second quarter of this
year, but only settling at the midpoint of the target range in 2025.
Pressures on core inflation have emanated largely from core
goods prices, reflecting high global goods inflation and a weaker
rand. Services inflation has so far remained relatively subdued and
averaged 3.9% in 2022. Risks are to the upside, however, given
8 Core inflation has ranged between 4.9% and 5.2% (average 5.0%)
between October 2022 and March 2023, while trimmed mean inflation
has ranged between 5.9% and 6.0% (average 6.0%) over the same
period. Underlying inflation pressures are therefore assessed to fall
within these two bounds.

Jan 2023

Mar 2023

Equilibrium risk premium
Basis points/100

2021 2022 2023 2024 2025
Risk premium

Source: SARB

Percentage change over four quarters
Core inflation components*

Sources: Stats SA and SARB

Core goods

Core inflation

Services
Forecast
* Dotted lines indicate the Sep 2022 forecasts
-2

Percentage points
Contributions to headline inflation
Sources: Stats SA and SARB

Forecast


Electricity

Fuel

Food

Core

Headline*
* Percentage change over four quarters

APRIL 2023
the tightening rental housing market, rising medical insurance
inflation, elevated inflation expectations and possible secondround effects.9
Overview of the policy stance
Over the six-month period covered by this Monetary Policy
Review (MPR) (October 2022 to March 2023), the MPC raised
the repo rate by a cumulative 150 basis points. Following three
consecutive 75 basis point hikes leading up to, and including,
the November 2022 meeting, the MPC hiked the repo rate
by 25 basis points at the January 2023 meeting but stepped
up the pace to 50 basis points at the March 2023 meeting.
This has brought the nominal repo rate to 7.75%, taking the
policy stance closer to its neutral level.10
The adjustments in the pace of tightening reflect the MPC’s
data-dependency stance and judgements on the balance of
risks. Monetary policy operates with a lag, implying that the full
impact of the cumulative rate hikes over the past year is yet to
be felt.
The Quarterly Projection Model (QPM) suggests that the
nominal repo rate is likely to peak in the second quarter of this
year before coming down slightly in the first quarter of 2024.
The real repo rate remains below its estimated neutral level
of 2.5%, although the MPC has now increased the repo rate
above the implied peak rate in the QPM.
The MPC uses multiple different inputs to inform its policy
decisions, one of which is the SARB’s QPM. Under normal
economic conditions the model adequately captures inflation
risks, resulting in the QPM-implied repo rate path being closely
aligned with the MPC decisions. Over the past year, however,
repo rate decisions by the MPC have diverged from the
QPM-implied repo rate path, reflecting the extraordinary
uncertainty prevailing during this period.11
9 T Janse van Rensburg, A Khoza and P Mathuloe, ‘Food inflation and
wages – more than meets the eye?’, South African Reserve Bank
Research Brief No. RB/2022/02, Pretoria: South African Bank,
February 2022.
10 The SARB forecasts inflation at 5.5% in the third quarter of 2023,
which implies a current real repo rate of 2.25%, against the estimated
neutral real rate of 2.5%.
11 The QPM does not make risk adjustments to the inflation forecast,
but flags risks, often in the form of alternative scenarios.
Per cent

Repo rate

Source: SARB

Per cent
Two-years-ahead inflation expectations

Sources: BER and SARB

Business

Union representatives

Financial analysts
Midpoint
3–6% inflation target range


Per cent
Real and neutral repo rates

Source: SARB

Neutral

Real
Forecast

APRIL 2023
The backdrop to the November 2022 MPC meeting was
characterised by elevated uncertainty. The ongoing Russian
war in Ukraine presented risks of further tightening in energy
markets and ultimately a renewed pickup in energy prices,
placing additional pressure on already elevated and persistent
global inflation. Domestically, load-shedding intensified during
the period, while inflation remained elevated on higher food
and fuel price increases. This, among other things, raised
the likelihood of upward surprises in wage inflation given the
strong correlation between food and fuel price increases and
wages in South Africa, and also given the low public sector
wage assumptions built into the forecasts. At the same time,
Eskom had applied for a 32.7% tariff increase, while increased
load-shedding required extensive use of diesel-powered open
cycle gas turbines (OCGTs), which raised the prospect of
higher administered price inflation over the outlook period.
Domestic growth was revised slightly lower to 1.8% in 2022
(1.9% in September) and slashed to 1.1% and 1.4% in 2023
and 2024 respectively. Headline inflation was forecast slightly
higher relative to September 2022, at 6.7% (6.5%) in 2022 and
5.4% (5.3%) in 2023, but the three- to five-quarters-ahead
average inflation was unchanged.12 The upward adjustment in
the near-term inflation profile was mainly due to higher food and
core inflation and reflected the weaker rand exchange rate and
elevated global goods inflation.13 With the profile for headline
inflation largely unchanged relative to the September 2022
MPC meeting, the QPM indicated no change in the implied
repo rate path at the November 2022 meeting. However, the
balance of risks to the inflation outlook were assessed by
the MPC to be to the upside. Accordingly, the repo rate was
raised by 75 basis points at this meeting, with the split decision
reflecting the elevated uncertainty.
The January 2023 MPC meeting followed the release of
the third-quarter GDP data that showed the economy
had rebounded strongly from the second-quarter slump.
Consequently, while potential growth was revised higher, the
output gap turned marginally positive. Meanwhile, the global
economy continued to be shaped by high inflation and low
growth, with regions such as the eurozone faced with elevated
recession risks. The trajectory for Group of Three (G3) inflation
was largely in line with that at the November 2022 meeting
with inflation expected to return to the 2.0% target from 2024.
Inflation risks remained elevated at the time of the January 2023
MPC meeting. Food inflation continued to surprise to the
upside, underpinned by meat as well as bread and cereals
inflation. Meanwhile, load-shedding was flagged as a serious
threat to the projected moderation in headline inflation.
12 The forecast takes into account the policy rate trajectory indicated
by the SARB’s QPM.
13 Food inflation was expected at 8.8% in 2022 (8.1% in September 2022),
6.2% in 2023 (5.5%) and unchanged at 4.2% in 2024.


Sep 2022

Nov 2022

Jan 2023

Mar 2023
Percentage change over four quarters

2021 2022 2023 2024 2025
Three- to five-quarters-ahead average inflation

Sources: Stats SA and SARB

Bread and cereals

Meat
-6
-3

Percentage change over four quarters
Large-weight food components inflation*
Sources: Stats SA and SARB

* Dotted lines indicate forecasts

APRIL 2023
The depreciated rand exchange rate and elevated inflation
expectations also posed threats to disinflation. The energy
regulator also announced a large electricity price increase in
January 2023, while the increased use of OCGTs by Eskom
meant that risks of further tariff increases remained. Globally,
inflation was still high, while the oil market was expected to stay
tight due to the ongoing geopolitical tensions and the expected
rise in demand from China.
With respect to the QPM, domestic headline inflation was
forecast to remain unchanged at 5.4% in 2023, but slightly
higher at 4.8% (from 4.5%) in 2024 and at 4.5% in 2025. The
largely unchanged trajectory for headline inflation masked
the dynamics in its components. Food and electricity inflation
were projected to be markedly higher in both 2023 and 2024
relative to November 2022, while core and fuel inflation pulled
headline inflation lower. Given a somewhat higher three- to
five-quarters-ahead average inflation, the QPM suggested a
25 basis point increase in the repo rate at the January 2023
MPC meeting. The MPC raised the repo rate by 25 basis points
at this meeting. As with the November 2022 MPC meeting,
however, the decision was also split.
At the time of the March 2023 MPC meeting there was little
change with respect to the global macroeconomic projections,
with a slight upward adjustment in global growth alongside
a modest moderation in inflation.14 Meanwhile, GDP data
released in March showed that the domestic economy had
contracted sharply in the fourth quarter of 2022, mainly due
to load-shedding. The output gap was revised slightly wider
relative to the January meeting at -0.6% (-0.3%) in 2022 and
-0.2% (0.1%) in 2023, but was still closed over the medium
term. The current account was expected to remain in deficit.
The weaker current account balance, together with the elevated
risk premium, largely drove the rand’s weakness, with the real
effective exchange rate remaining undervalued throughout the
forecast period.
Headline inflation was revised higher, to 6.0% for 2023, on the
back of still rising food inflation and higher electricity inflation.15
Over the outlook period, headline inflation was revised higher
to 4.9% (4.8%) in 2024 but was unchanged at 4.5% in 2025.
Although the three- to five-quarters-ahead average inflation
was higher compared with the previous forecast, the wider
output gap partially offset the effects of the higher inflation,
and resulted in the QPM-implied repo rate profile remaining
unchanged relative to the January 2023 MPC meeting.
14 News of banking stresses in the US and eurozone reverberated across
global markets from the middle of March 2023. However, the effects
had not reflected in macroeconomic data at the time of the March
MPC meeting.
15 Food inflation was revised higher to 9.9% (7.3% in January) in 2023,
4.5% (4.4%) in 2024 and 4.5% in 2025. Core inflation remains largely
unchanged relative to the January 2023 MPC forecasts. The higher
core goods inflation at the March 2023 MPC meeting is tempered by
the slightly downwardly revised services inflation.
Percentage points
Change in headline inflation*


* Relative to Jan 2023 MPC
Core
Food
Fuel
Electricity
Headline
Sources: Stats SA and SARB


Percentage of potential GDP
Evolution of output gap estimates

Source: SARB

Nov 2022

Jan 2023

Mar 2023

Actual

Nov 2022

Jan 2023

Mar 2023
Percentage change over four quarters
Evolution of inflation forecasts*
Source: SARB

* Dotted lines indicate forecasts

APRIL 2023
The MPC, however, assessed a material deterioration in the
inflation outlook amid several inflation shocks, and in the
context of a sustained target breach. Food inflation continued
to surprise to the upside, while load-shedding added to inflation
risks. Similarly, inflation expectations remained wedged closer
to the upper limit of the target range, while risks associated
with the public sector wage assumptions were heightened.
These considerations, together with a projected weaker rand
exchange rate, prompted the MPC to raise the repo rate by
50 basis points at the March 2023 meeting, with the decision
remaining split reflecting the uncertainty of the outlook.
Conclusion
The COVID-19 pandemic has largely faded; however, its
aftershocks continue to linger and have manifested in the global
economy experiencing sharply lower growth amid persistent
inflation. In the domestic economy, headline inflation peaked
at 7.8% in July 2022. The decline towards the midpoint of the
target range, however, remains very slow. Since the October
2022 MPR, headline inflation pressures have predominantly
come from the domestic environment, particularly from core
and food inflation. Over the outlook period, load-shedding
poses a major upside risk to inflation as costs of back-up
energy solutions are passed on to consumers. Load-shedding
may also affect the supply of some goods, especially along the
agricultural value chain.
The MPC has raised the repo rate by a cumulative 150 basis
points over the review period, and by 425 basis points since
normalisation began in November 2021. Real rates, however,
have risen only gradually, largely reflecting repeated upside
inflation surprises during the period, and remain below the
estimated steady-state neutral real repo rate of 2.5%.
Meanwhile, domestic growth has declined steeply, as the
economy has been subjected to progressively worsening
load-shedding since the third quarter of last year, alongside the
underperforming rail and port infrastructures that have cost
the country billions of rands in unrealised export revenues. The
MPC has repeatedly highlighted the importance of reforming the
core infrastructure sectors, together with the further de-risking
of the economy by stabilising public debt as well as reducing
the impact of administered prices on overall inflation. A more
dynamic economy will generate higher growth, enhance the
transmission of monetary policy and reduce disinflation costs.

Per cent
Evolution of repo rate forecasts*

Source: SARB

Actual

Nov 2022

Jan 2023

Mar 2023

* Dotted lines indicate forecasts

APRIL 2023
Box 1 Load-shedding adds materially to inflation
1 Daily load-shedding data is filtered according to the business hours of
each sector. It is assumed that, on average, businesses are subjected
to at least one instance of load-shedding (with the duration adjusted for
different phases) during their business hours. See D Lekgeu and
S Sidat, ‘Assessing the impact of load-shedding on inflation’, South
African Reserve Bank Research Brief No. RB/2023/11, Pretoria:
South African Reserve Bank, April 2023.
2 The source for 2022 is EskomSePush (ESP); 2023 is a SARB assumption.
3 The cost of running generators by households is currently not measured
by the consumer price index (CPI).
4 The sectors considered in this analysis are the industrial sector (excluding
mining and quarrying and construction) the commerce sector (including
finance and retail) and the agricultural sector.
5 It is assumed that the industrial sector operates 9 hours every day on
weekdays, while the commerce sector operates for 12 hours every day,
except for Sunday when they operate for 9 hours. The agricultural
sector is assumed to operate for 9 hours every day, except on
Sunday (4.5 hours).
6 Sakeliga, ‘Commercial perspectives on Eskom’s rolling blackouts:
what does loadshedding cost businesses?’, August 2022. https://
sakeliga.co.za/wp-content/uploads/2022/08/Sakeliga-report-Cost-ofLoadshedding.pdf
7 According to the Council for Scientific and Industrial Research (CSIR), at
R15/litre for diesel, the average fuel cost of running a generator is R4.50/
kWh. At R20/litre, the cost increases to R6.00/kWh. Given that the diesel
price in 2022 averaged at R22.51, the cost of running a generator adds
up to R6.75/kWh, while the weighted average price from municipalities
is estimated at R2.90/kWh. Parliament of the Republic of South Africa,
Portfolio Committee on Mineral Resources and Energy, 15 March 2022
[YouTube video].
8 The cost-share is assumed to be higher for more energy-intensive sectors
such as the industrial sector, but lower for less energy-intensive sector
such as the agricultural sector.
Load-shedding that is implemented during business operating
hours affects output and productivity. The South African Reserve
Bank (SARB) estimates that in 2022 approximately 14% of
business hours were lost in the industrial sector, while losses in the
commercial and agricultural sectors varied between 11% and 12%.1
With load-shedding expected to increase from 157 days in 2022 to
250 days in 2023,2 the loss in business hours is expected to rise.
This box explains the methodology underlying the SARB’s estimated
0.5 percentage points inflationary impact of load-shedding on
inflation in 2023.
Businesses have resorted to costly alternative sources of energy
such as solar or back-up power generators to mitigate the production
downtime from load-shedding. The latter, in particular, presents
significant variable (fuel) costs, and these additional costs are likely
to be passed on to consumers, adding to inflationary pressures.3
The SARB’s modelling estimates the impact of load-shedding on
headline inflation in two steps: the first step computes the additional
electricity costs from generating power off-grid,4 and the second step
assesses the impact of the additional electricity costs on consumer
price index (CPI) inflation. With regard to additional load-shedding
costs, the SARB has made the following assumptions:
- Load-shedding takes place at various stages (stages 1 to 6) to
account for the intensity and variability in productive business
hours across the sectors.
- Generators only run during the business hours of the respective
sectors.5
- In total, 67% of firms use diesel generators during load-shedding.6
- The cost of power from running a generator is 133% higher than
that of power provided by the municipal grid.7
- The share of electricity costs to total costs varies across
each sector.8
Per cent

How businesses manage the impact of load-shedding
Generator
67.1
22.1
12.3
Solar power
Energy storage
Source: Sakeliga

APRIL 2023
- In total, 90% of the additional generating costs are passed on to
final prices.
Based on the above-mentioned assumptions and with producers
passing on 90% of the additional energy costs due to load-shedding
to final consumer prices, load-shedding raised the CPI by 0.6%
in 2022 and is expected to raise it by a further 1.1% in 2023.
This further implies an inflation rate impact of 0.5 percentage
points (i.e. 1.1% - 0.6%) in 2023 from load-shedding. This implies
substantial upside pressure on headline inflation in 2023 and will
slow the disinflation process underway. Furthermore, these effects
may be exacerbated by larger-than-modelled disruptions and supply
shortages, especially in the food value chains.9
9 B Ginindza, ‘Poultry abattoirs forced to discard uncooled chickens due to
load-shedding’, 9 December 2022.
companies/poultry-abattoirs-forced-to-discard-uncooled-chickens-due-toload-shedding-9911b024-5e36-4ca6-ae1d-2947c7feb201
Box 2 Administered prices are exerting upward
pressure on headline inflation

A natural monopoly industry is characterised by high fixed costs and
scale economies, which imply a large efficiency penalty from competition
due to the duplication of fixed costs and the inability to exploit scale
economies.

Between January 2009 and December 2022, the water price rose
fourfold and the electricity price by even more, yet the consumer price
index (CPI) only doubled. Meanwhile, the taxes and margins component
of the fuel price more than trebled from 2009, driven by sharp increases
in the fuel levy, Road Accident Fund levy and dealer margin. (See SARB,
Monetary Policy Review, April 2022).

See F Venter, ‘Review of administered prices in South Africa: basic
education’, 2023; Z Ismail and C Wood, ‘Review of administered prices:
the electricity tariff’, 2023; Z Ismail and C Wood, ‘Review of administered
prices: the petrol price’, 2023; K Walsh, ‘Review of administered prices in
South Africa: municipal rates and taxes’, 2023; and K Walsh, ‘Review of
administered prices in South Africa: water tariffs’, 2023. The research
was commissioned by the SARB.
Price regulation is a common method to enhance the performance
of natural monopolies by ensuring that a lack of competition does
not result in inefficiencies or the abuse of market power.1 Effective
regulation can incentivise a monopolist to operate nearly as
efficiently as if the market were perfectly contestable. Over the past
decade, administered prices in South Africa have generally risen far
in excess of headline inflation.2 This box summarises recent research
by the South African Reserve Bank (SARB) on the determinants of
administered price inflation for electricity, fuel, water and property
rates in South Africa.3
The administered prices for fuel and electricity are subject to complex
regulatory regimes which consider several variables that affect the
cost of supply. Although South Africa is a price taker in the global
oil market, its administered price regime means that a significant
portion of the price for domestic fuels is determined by a mix of
taxes, levies and margins which account for between 40% and 60%
of the retail price of petrol. These components have risen markedly
over the past decade, with the retail margin, Road Accident Fund
levy and transport costs rising by 40%, 44% and 49% respectively in
real terms over the 10 years to November 2022. Similarly, household
electricity costs have risen by 60% since 2017, before considering
the recently announced 18.7% increase for 2023/24.
Percentage points

Additional CPI impact

0.6
1.1
0.5

Additional impact
Source: SARB
Index: Jan 2009 = 100

Administered prices

Sources: Central Energy Fund, Stats SA and SARB

Forecast
Electricity
Water
Fuel taxes and margins
Administered prices
Education
Rates and taxes
CPI
Communication

APRIL 2023
The disconnect between the costs of supply and prices is also a
feature of pricing for water and property rates. Water tariffs and
property rates are set as part of municipal budget processes which
focus on overall revenue generation. Apparently, many municipalities
do not employ any discernible frameworks to determine the
appropriate level of, or increases in, the tariffs. The average increase
in the water supply price between July 2017 and July 2022 was
10.3% per annum compared with average consumer price index
(CPI) inflation of 4.5% per annum over the same period. Property
rate revenues in seven South African metropolitans have grown
substantially faster than inflation over the past five years.4
Price increases for goods and services can be motivated by
increases in costs, excess demand or investment considerations.

These metropolitans are Tshwane, Johannesburg, Ekurhuleni, Cape
Town, eThekwini, Mangaung and Buffalo City. Nelson Mandela Bay was
excluded due to a lack of data in some years. The above-inflation growth
in property rates revenue was driven by increases in the valuations of
properties used to calculate the property rates. These increased by 8%
per annum between July 2012 and July 2022. The increase in the cents in
the rand rate has been close to CPI, even dropping below CPI in 2021
and 2022. Meanwhile, commercial property rates grew by 8.6% per
annum between 2000 and 2019.
Box 3 An updated Quarterly Projection Model

See B Botha, S de Jager, F Ruch and R Steinbach, ‘The Quarterly
Projection Model of the SARB’. South African Reserve Bank Working
Paper Series No. WP/17/01, 2017.

For a detailed discussion of the updated QPM, see Pirozhkova et al.,
‘Fiscal policy and other enhancements to the Quarterly Projection
Model’, forthcoming.
The South African Reserve Bank’s (SARB) Quarterly Projection
Model (QPM) has been the workhorse forecasting model used
in Monetary Policy Committee (MPC) meetings since mid2017.1 It has also been valuable in communicating the SARB’s
macroeconomic and monetary policy projections to the public.
Over this roughly six-year period, several features of the QPM in
need of enhancement have come to the fore. This box provides
an overview of some key model improvements to address
these issues.2 Implementing these changes should improve the
forecasting ability of the QPM, while reducing the application of
judgement and thus potential sources of bias in forecasting.
The above analysis, however, suggests substantial deficiencies in
the current regulatory frameworks. Developing frameworks that
permit for the articulation of costs of supply, while also incentivising
efficient consumption, can help enhance efficiencies in regulated
sectors (including municipalities). Regulators should routinely apply
the ‘competitive supplier’ test to assess whether the incurred costs
are prudent or not and, where possible, introduce competition in
these markets.
Inefficient price setting for regulated prices can be costly to the
economy. Higher administered prices drive up headline inflation
and complicate the SARB’s ability to achieve price stability, and
potentially require its Monetary Policy Committee to raise interest
rates.5 Moreover, most network services also serve as inputs
into production, hence higher administered prices raise the cost
structure of the economy. Low administered price inflation would
help to bring headline inflation in line with the inflation target, raising
the prospect of permanently lower interest rates.

There is a bidirectional relationship between administered prices and
headline inflation. 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, 2022.
Fiscal policy
The QPM, in its current form, has no mechanism to account for fiscal
policy actions in a systematic manner. As South Africa’s fiscal metrics
deteriorated in recent years – with rising public debt weighing on
country risk, sovereign borrowing costs and the exchange rate –
QPM forecasts have relied on off-model analyses and judgement
to account for their impact. Similarly, fiscal consolidation efforts
have also had material impacts on activity, but again, this is not
directly considered in the current QPM. Changes in the country’s
fiscal position should be accounted for in the model to enhance
the coherence of the analytical framework by exploiting known
interlinkages – hence the addition of a fiscal block.
The updated model incorporates a fiscal sector consisting of five
components. Government debt evolves according to the overall
budget balance, which is determined by the primary balance and
interest payments on outstanding debt. The primary balance, in
Fiscal block
Cyclical
budget balance
Interest cost of
government debt
Primary
budget balance
Economic
activity
Exchange rate
and inflation
Interest rates
(short and
long term)
Government debt
Structural
budget balance
Fiscal impulse
Linkages
Key QPM channels
Risk premia
Main components of the fiscal block

APRIL 2023
turn, is split into a structural and cyclical component. The structural
balance captures government’s discretionary policy actions to
implement countercyclical fiscal policy while being constrained by
the need to stabilise public debt, while the cyclical balance reflects
the role of automatic fiscal stabilisers over the economic cycle.
The existing QPM channels affect the fiscal block in two ways:
changes in economic activity impact the cyclical and structural budget
balance, while movements in interest rates affect interest payments
on government debt. The fiscal block then feeds back into the QPM
via discretionary changes in fiscal policy that affect economic activity.
In addition, changes in public debt levels move both country risk and
term premia as well as currency levels and inflation.
Inflation dynamics
A few changes have also been made to enhance the QPM price
block. In the updated model, a distinction is made between private
and public wages, as their dynamics often diverge, with public
sector wages generally being more backward-looking and less
sensitive to economic conditions than those of the private sector.
The distinction between public and private sector wages enables the
incorporation of announced public wage agreements in the forecast
as an assumption.
The Phillips curves for the various consumer price index (CPI)
components are also augmented to include nominal unit labour
cost growth along with the current real unit labour cost gap.3 The
combined specifications improve the forecasting ability relative to
any one of the two definitions used individually.
Changes in fuel and electricity prices often spill over into core and
food price inflation, given the role of fuel and electricity as inputs into
the production and distribution of goods and services. The updated
model explicitly accounts for such spillovers, as they are not always
captured to the extent suggested by the data in the current model.
Evidence increasingly suggests that price setting in the economy has
become less sticky. Inflation expectations also appear to be shifting
towards the midpoint of the target range, likely reflecting the SARB’s
explicit efforts to anchor expectations at this level. In the updated
model, inflation expectations are somewhat better anchored, and
inflation is less sticky than in the current QPM. This is achieved by
assigning a higher weight to the inflation target than past inflation
outcomes in the model’s price-setting process.

Empirical evidence suggests that this combination is a better predictor of
inflationary pressures than either variable in isolation.
The monetary policy rule
The current monetary policy rule (the Taylor rule) responds to
the average deviation of the inflation forecast from the midpoint
of the target range at the three-, four- and five-quarters-ahead
horizon. This longer forecast horizon was thought to be an
appropriate policy horizon to guide interest rate decisions, given
the lags in the transmission of monetary policy to affect economic
outcomes. However, when year-on-year base effects from nearterm shocks cause inflation to dip below the target in the four-
and five-quarters-ahead forecasts, the rule’s inflation signal
becomes diluted and suggests a lowering of the repurchase
(repo) rate, despite expectations for headline inflation to pick up
for at least four quarters, and core inflation for even longer. Such
a counter-intuitive interest rate response is bound to worsen the
inflationary impacts of the initial shock, not dampen them, and
renders the longer inflation forecast horizon in the current Taylor
rule problematic. The revised rule focuses only on the threequarters-ahead inflation forecast, which essentially represents the
one-year-ahead horizon from the latest quarterly inflation number.
The state of the real economy in the updated rule is reflected
by the output gap along with a growth gap — how gross
domestic product (GDP) growth deviates from potential growth
– as historical policy decisions are better characterised by such
a rule. Considering relative growth dynamics in conjunction with
the level of activity helps provide additional context on the state
of the real economy when assessing the appropriate stance of
monetary policy. In the event of actual growth slowing below its
potential rate – as it did during the initial quarters of the COVID-19
pandemic – the ‘growth gap’ rule would suggest an even greater
degree of policy accommodation, as this growth dynamic is
bound to widen the output gap going forward.
The introduction of the fiscal block along with other structural
enhancements appear to deliver superior forecasting performance
relative to the current model. Comparing the ratio of the root
mean square errors (RMSE) of the updated model’s in-sample
forecasts to those of the current QPM shows that headline
inflation forecasts are better at all horizons, as are those of the
repo rate.4Core inflation forecasts are superior throughout, barring
at the five-quarters-ahead forecast. Finally, growth forecasts
are slightly better over the near term – likely due to the model
accounting for fiscal policy actions.
4 Values below 1 indicate greater accuracy of the updated QPM
compared to the current QPM.

APRIL 2023

Per cent
Headline inflation
Forecasting performance
Relative forecast errors: updated QPM versus current QPM

Per cent
Core inflation

Per cent
Repo rate

Per cent
GDP growth

Source: SARB
Forecast horizon (quarters)
Forecast horizon (quarters)
Forecast horizon (quarters)
Forecast horizon (quarters)

APRIL 2023
Global economy: riding
shock waves
The global economy is experiencing stagflationary conditions,
with high and persistent inflation amid slowing growth. Although
the global economy weathered the significant shocks of 2022
relatively well, and has so far avoided a recession, the growth
outlook remains fragile as the full impact of higher interest rates
has yet to be felt. Global inflation is estimated to have peaked in
the second half of 2022, and it is expected to decline gradually
in 2023 and 2024. However, tight energy markets, still strong
demand, and firm labour markets in advanced economies pose
risks to the disinflation process. The recent banking stress in
the US and eurozone could potentially add further complica
tions. Meanwhile, high borrowing costs amid elevated public
debt levels have pushed developing economies with weaker
macroeconomic fundamentals into either debt distress, or a
high risk of debt distress.
Against the backdrop of higher global interest rates and
expectations of further central bank policy tightening, as
well as Russia’s ongoing war in Ukraine, most economies
are expected to grow substantially below their potential this
year. The combination of high and more persistent inflation
and rising interest rates will depress real purchasing power
and slow household demand. Growth in the world’s major
economies is expected to slow sharply in 2023, with mild
recessions projected in some. However, a range of upside
economic data surprises in recent months, alongside a firm
reopening of the Chinese economy, has boosted sentiment
somewhat, prompting upward revisions to the 2023 global
growth projections. Consensus forecasts have been revised
higher and now project global growth to reach 2.4% this year.
Across the advanced economies, growth is likely to slow
to 1.3% in 2023, with mild recessions expected in the US,
eurozone and United Kingdom (UK), as the lagged effects
of the ongoing rate hikes take a toll on economic activity.16
Growth in the US economy is expected to moderate to 1.6%
this year, from the 2.3% projected at the time of the October
2022 MPR. Meanwhile, the eurozone economy has held up
relatively well after withstanding the war-induced shocks of
2022 and avoiding a recession at the end of last year.17 Recent
economic indicators, including consumer and business
confidence indices, however, still point to a slowdown in
eurozone economic activity, while the ongoing monetary policy
tightening poses downside risks to the region’s growth outlook.
16 IMF, WEO, April 2023.
17 European gas storage levels have continued to increase, while
large fiscal interventions by eurozone governments have partly
shielded the private sector from high energy prices.

Percentage change
Jan

Apr
Apr
Jul
Oct
Jan
Evolution of 2023 real global GDP growth forecasts
Source: Bloomberg

Percentage change
Real GDP growth projections
for selected advanced economies*
Source: IMF


US
Eurozone
UK
Japan
* Dotted lines indicate forecasts

Pre-COVID-19 GDP growth
average (2010–2019)
2020–2024
Percentage change

Global inflation
Source: IMF

Forecast

APRIL 2023
The eurozone is expected to slow to 0.8% this year, while
the Japanese economy should weaken to 1.3%, alongside
other advanced economies. The UK economy is projected to
contract by 0.3% in 2023.
Economic growth in emerging market and developing
economies is expected to average 3.9% in 2023 – remaining
below pre-pandemic levels. Activity levels will be dampened
by elevated inflation, high interest rates and weaker export
demand. However, a stronger rebound in China should have
positive spillover effects to emerging markets, particularly
those in Asia, which may benefit from a boost in manufacturing
activity as well as tourism. India is forecast to expand by 5.9% in
2023, making it one of the world’s fastest-growing economies
this year. In Latin America, countries such as Brazil and Mexico
have seen their growth outlook for 2023 revised slightly higher
amid resilience in domestic demand. Nonetheless, growth
for the region is projected to be substantially weaker at about
1.6% this year, down from 4.0% in 2022. Growth across
sub-Saharan Africa should remain modest as tightening
financial conditions discourage consumption and raise debtservice costs amid elevated public liabilities.
Although
China’s
faster-than-expected
reopening
from
COVID-19 restrictions presents an upside risk to global growth,
spillovers to the global economy are likely to be more muted
than historical trends would suggest.18 The global growth
outlook is, however, subject to several downside risks, including
additional policy tightening and elevated debt levels. Despite
the market’s recent pullback in interest rate hike expectations
for the US Fed, the European Central Bank (ECB) and the Bank
of England (BoE) on account of real rates being closer to their
neutral levels, and following signs of banking sector stress in
the US and eurozone in March 2023, the prospect of additional
interest rate increases remains a threat to the world economy.
According to the World Bank, a severe monetary tightening
episode by advanced economy central banks could result in
either a sharp slowdown, where global growth falls to 1.3%
this year, or a global recession, where growth plummets to
0.6% in 2023.19
18 Unlike in previous episodes when ‘commodity absorbing’ exports
and investment were the key drivers of Chinese growth, growth is
now expected to be driven mainly by domestic consumption.
19 World Bank, Global Economic Prospects, January 2023.
Percentage change
Real GDP growth in selected emerging markets*
Source: IMF


Russia
China
India
Brazil
* Dotted lines indicate forecasts

Pre-COVID-19 GDP growth average (2010–2019)
2019–2024
Index

China’s lockdown stringency index
Source: Our World in Data

Jan Apr Jul

Oct Jan Apr Jul
Oct Jan Apr Jul
Oct

APRIL 2023
Tightening financial conditions also pose other challenges
and risks to the world economy, including the possibility of
more severe recessions in the world’s major economies,20 and
debt sustainability, particularly in EMDEs. The International
Monetary Fund (IMF) estimates that about 15% of low-income
countries are already in debt distress and another 45% are at a
high risk of debt distress, making them particularly vulnerable
to a further tightening in financial conditions. Countries such
as Sri Lanka, Ghana and Zambia have already defaulted
on their debt. While public debt has declined in advanced
economies over the past year, in EMDEs it edged up to 65%
of GDP, from 64% of GDP in 2021.
During US interest rate hiking cycles, emerging market
currencies typically depreciate, and the performance of
emerging market currencies against the US dollar in 2022
was no exception. The combination of depreciated domestic
currencies and higher global food and energy prices saw
inflation rise markedly and remain elevated in many emerging
market economies. With the Fed hiking rates aggressively
over the past year and into the current year, pressures have
also emanated from heightened volatility in financial markets,
resulting in marked capital outflows from emerging markets
with weaker macroeconomic fundamentals.21
Inflation risks are firmly to the upside
After rising sharply over the past two years, global inflation
peaked in the third quarter of 2022 amid easing supply chain
pressures and lower energy prices. Expectations are broadly
for the disinflation process to continue in 2023 and for inflation
to move closer to central bank targets by 2024. However,
resilient consumer demand and still tight labour markets pose
significant upside risks to the global inflation outlook. Measures
of underlying inflation such as core and trimmed mean inflation
have risen steadily and have become increasingly persistent
across major advanced economies.
Although medium-term market-based measures of inflation
expectations have declined steadily over the past year, they
remain above target in the US as well as in the eurozone. Over
the longer term, expectations have also stabilised at levels
moderately above 2.0%. The persistence of both inflation and
inflation expectations, even as real interest rates have risen to
their perceived neutral region, lends some credence to the
view that the neutral real rates may have shifted higher.
20 In a number of economies, actual and expected credit growth has
slowed, and in some, even turned negative. See the Organisation
for Economic Co-operation and Development’s (OECD) Economic
Outlook, Interim Report, March 2023, titled ‘A fragile recovery’.
21 The US Federal Open Market Committee’s (FOMC) March 2023
median dot plot projects US interest rates to reach 5.25% in 2023.
Percentage of GDP

Emerging market government debt
Source: IIF

-2

Percentage change over 12 months
Headline inflation and trimmed means
for the US and eurozone
* Trimmed means of 16% and 15% for the US and eurozone respectively
Sources: US Bureau of Labor Statistics, Eurostat
and Federal Reserve Bank of Cleveland

2022 2023

US headline CPI

US trimmed mean*

Eurozone headline CPI

Eurozone trimmed mean*
-2

Per cent
Inflation expectations
Source: Bloomberg

2022 2023

US two-years-ahead

US five-years-ahead

Inflation target

APRIL 2023
Amid persisting upside inflationary pressures, major global
central banks have projected inflation to only return to target
by the end of 2024. The latest median projection by members
of the Federal Open Market Committee (FOMC) show core
personal consumption expenditure (PCE) inflation – its preferred
measure – at 3.6% in 2023, easing gradually to 2.6% in 2024.
The ECB has raised its inflation forecasts for 2023 higher and
now anticipates inflation to average 5.3% this year, while the
BoE expects inflation to average 4.0% in 2023. Projected
trends are similar for emerging market economies, barring
China, where inflation has remained muted. Brazil’s inflation is
expected to average around 5.8% – above the upper end of its
inflation target range – in 2023, while South Africa’s inflation is
forecast at 6.0% this year.
Several drivers have contributed to the recent rise and
broadening of inflation pressures. The COVID-19 lockdowns
of 2020–21, together with the generous fiscal transfers,
generated large savings. These savings buffers have
underpinned the resilience in spending over the past year
and, alongside the pent-up demand associated with the
lockdowns, have exacerbated demand-supply imbalances,
particularly as supply chains have been slow to fully recover.
Labour markets in advanced economies have also remained
unusually tight, adding to inflationary pressures.22 This
tightness largely reflects low labour supply growth due to the
slow return of workers to the labour force after the COVID-19
pandemic, pandemic-induced early retirements, and more
restrictive immigration policies.23
A range of factors could keep inflation elevated for longer,
although there are downside risks. A re-emergence of
supply bottlenecks would delay the rebalancing of demand
and supply in the goods markets, while continued US dollar
strength could aggravate imported inflation across the
world. Similarly, Europe’s additional fiscal support measures
to cushion households and businesses from high energy
prices could further support demand, adding to inflationary
pressures. In addition, the recent banking sector stress
in the US and eurozone potentially pose a risk of financial
dominance. Downside risks to inflation could materialise from
a severe slowdown in global demand that would trigger either
a sharp slowdown or a recession in the world economy.24
On balance, risks to the inflation outlook are skewed to the
upside, while uncertainty over how quickly these pressures
could recede remain elevated.
22 L M Ball, D Leigh and P Mishra, ‘Understanding US inflation during the
COVID era’, International Monetary Fund Working Paper Series No.
2022/208, Washington: International Monetary Fund, October 2022.
23 D Cascaldi-Garcia, M Orak and Z Saijid, ‘Drivers of post-pandemic
inflation in selected advanced economies and implications for
the outlook’, FEDS Notes, Washington: Board of Governors
of the Federal Reserve System, January 2023.
24 The World Bank’s latest estimates show that global inflation could
fall to either 4.4% or 2.5% in 2023 if the world economy experiences
either a sharp slowdown or a recession respectively.
Percentage of GDP

Saving rates of selected advanced economies

Eurozone

UK

US

Sources: US Bureau of Economic Analysis, Eurostat
and UK Office for National Statistics

APRIL 2023
Conclusion
Global growth is projected to slow in 2023 as elevated
inflation and high interest rates weigh on economic activity.
Economic growth in advanced economies is expected to
slow considerably, with the US and the eurozone forecast to
slip into mild recessions this year. At the same time, risks to
inflation remain elevated. With most countries experiencing
stagflationary conditions and real interest rates already in
the neutral region, the outlook for monetary policy remains
uncertain. Nonetheless, major global central banks have
publicly committed to bring inflation back to target within a
reasonable time frame, suggesting that rate hikes may continue
for a while.
Box 4 Tight labour markets and inflation

In the United States (US), the recent decline in productivity is deeper than
typical recession patterns, yet gross domestic product (GDP) is still
growing. Low unemployment rates are also observed in the eurozone,
United Kingdom (UK) and Canada, although job creation does not
appear unusually strong relative to GDP.

Hourly earnings were up 4.2% year on year in the US in March 2023,
while eurozone compensation per employee rose 5.1% year on year
in the fourth quarter of 2022 and weekly earnings in the UK were up
5.7% year on year in January 2023.

See Beige Book – 7 September 2022, US Federal Reserve Board.
Central banks globally have aggressively hiked rates over the past
two years to stem the spread of inflation. In response, output growth
has slowed in major advanced economies in recent quarters.
However, labour markets have remained unusually tight, with
unemployment rates near record lows. Although this strength may
reflect the typical lags in the response of employment to slowing
output, its persistence raises the concern that wage pressures could
build sustainably, particularly given constrained labour supply.1 This
box discusses how tight labour markets could complicate central
banks’ efforts to bring inflation back to target within a reasonable
time frame.
Tight labour markets reduce involuntary unemployment and increase
the bargaining power of workers. In periods of high inflation, this
raises the odds of inflation-offsetting wage increases and, potentially,
a wage-price spiral. Nominal wages have risen significantly in most
advanced economies over the past year,2 yet so far real wages have
declined as inflation has repeatedly surprised to the upside. However,
risks of above-productivity real wage growth remain. For instance, in
2022 already, off-cycle pay increases to offset higher living costs
became more frequent in the United States (US), reflecting broader
efforts by firms to offer competitive pay in a tight labour market,
consistent with the efficiency wage theory.3 Under the current
conditions of tight labour supply, nominal wage growth might remain
elevated even if inflation were to decline in line with forecasts. This
prospect has raised concerns by the US Federal Reserve (Fed) that
Percentage change over four quarters
US non-farm payrolls and productivity*
Sources: US Bureau of Labor Statistics and NBER
* Shaded areas indicate recessions


Payrolls
Productivity

Ratio
US open positions to unemployed and new hires

Sources: JOLTS and US Bureau of Labor Statistics


Unemployed

New hires

APRIL 2023
wage growth could remain too high to be consistent with its 2.0%
inflation target.
Evidence on whether the current tightness in labour markets is
temporary or more enduring is mixed. It may be that employment will
react to slowing activity with a longer lag than in previous cycles.
Indeed, there are some indications that payroll growth could slow.4
By contrast, the resilience of job creation could be a sign of ‘labour
hoarding’ – a result of the recruitment difficulties that firms have
experienced post-pandemic amid constrained labour supply.5, 6
Under this scenario, employment may prove more inelastic to gross
domestic product (GDP) growth, adding to inflation inertia.7 Policy
rates would need to rise further or remain higher for longer, increasing
the risk of a sharper slowdown or even a recession. For emerging
markets, this means increased volatility in financial markets and
currency depreciations.
In South Africa, the unemployment rate remains exceptionally high,
at 32.7% in the fourth quarter of 2022. At face value, this may
suggest substantial slack in the labour market. However, the duality
of South Africa’s labour market is such that the market for highskilled jobs has always been tight. This, combined with the strong
bargaining power of labour unions, means that wage increases have
historically tended to be high.
The current cycle, however, could be different. Despite a recovery in
nominal wages post-pandemic, real wages have, on average,
declined, as has happened globally. South African firms are facing a
challenging operating environment, compounded by load-shedding
and efforts to mitigate its impacts, and hence would likely be less
inclined to accommodate large real wage increases. However, given
sharply higher inflation in 2022 as well as elevated inflation
expectations and an adaptive wage setting, material risks attach to
the real wage growth outlook, with implications for monetary policy.8

Both the hiring rate and businesses’ opinion on employment now appear
consistent with average payroll gains of circa 100 000 per month, rather
than the 300 000 plus seen between January and February 2023.

See ‘A closer look at a hot labor market’ by L Bauer, W Edelberg and
S Estep, Brookings Institution, 27 October 2022.

The latest Fed Beige Book reports that ‘many firms hesitated to lay off
employees even as demand for their goods and services slowed.’ See
Beige Book – 18 January 2023, US Federal Reserve Board.

This means that fewer jobs would be lost through the downturn, but
equally, fewer would be created when the economy eventually recovers.

Nominal unit labour costs are projected sharply higher in 2023 on
account of backward indexation of wages and the steep decline
in GDP in 2023.
Percentage change over four quarters
Unit labour cost
-6
-4
-2

Source: SARB
Forecast

APRIL 2023
Financial markets: the Fed
funds rollercoaster
Global financial conditions have shifted abruptly in recent
months, with banking stress in Europe and the US during
March 2023 prompting markets to reassess expectations for
tightening by major central banks. The rand is back at around the
levels prevailing six months ago, with the currency depreciating
in recent months in response to a difficult domestic news flow as
well as higher interest rates abroad. Local asset markets have
proved quite resilient despite these challenges, with the bond
market adjusting in an orderly way to higher global rates and
more local issuance, and South African equities faring better
than many global stocks over the past year. The March repo rate
decision surprised markets and has shifted market expectations
higher, with the peak repo now priced at around 8%.
Global financial market developments
The most important financial markets variable of the past six
months has been the federal funds rate. This behaves like
a global safe rate and therefore affects financial conditions
internationally, with especially marked effects where the
outlook for this rate is most uncertain. For the period under
review, there have been three distinct phases in the expected
path for the federal funds rate.
In late 2022, markets judged that the US Fed was near the
end of its hiking cycle and would be able to start cutting
rates late in 2023 – a path significantly more dovish than the
Fed’s own communications. This assessment supported a
broad loosening of financial conditions that lasted through
the fourth quarter of 2022 and into early 2023. US bond
yields eased across the curve and the US dollar – then at a
three-decade high – began weakening, providing relief for
most other currencies.
From January 2023, however, the US data flow and Fed
communications convinced markets that higher US rates
would be required to control inflation. By early March, pricing
for the terminal federal funds rate had risen to about 5.7%,
finally aligning with the median of the Fed’s own dot plot for
2023; US two-year yields had climbed past 5%, reaching a
22-year high; and the broad US dollar index had appreciated
again, disrupting the pre-existing consensus on US dollar
weakness during 2023.
This new position collapsed almost overnight, however, with
the failure of Silicon Valley Bank on 10 March 2023. Markets
immediately repriced the federal funds path lower, with
prospects for near-term hikes sharply discounted and the
terminal federal funds rate marked down by around 70 basis
points, to a little over 5%, as of mid-March. Bond yields also
Per cent

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

1 Feb 2023

1 Mar 2023

1 Apr 2023
Sources: Bloomberg and SARB


MSCI EM

Euro

Pound sterling

Japanese yen


Index: 3 Jan 2022 = 100
Sep
Nov

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

Jan
Mar
May
Jul
Jan
Mar

Basis points
US two-year yield intraday trading ranges
Sources: Bloomberg and SARB

Intraday US two-year yield

2019 average

2022 average

APRIL 2023
declined abruptly, with the two-year rate recording one
of its steepest drops on record. Banking sector stress
then broadened to Europe, with Credit Suisse sold to
UBS on 19 March, just four days after taking a special
US$54 billion loan from the Swiss National Bank. As of
late March, market pricing for the federal funds rate had,
once again, shifted well below the dot plot median, with
markets anticipating approximately 100 basis points of
rate cuts in the second half of 2023.
The conditions which have required Fed tightening,
especially higher inflation, have also characterised most
other economies. The result, through much of 2022, was
an unusually synchronised tightening of global policy,
with China’s more subdued inflation rates making it the
only major economy deviating from this trend. (Even the
Bank of Japan relaxed its yield curve control policies in
late 2022, allowing longer-term rates to rise, although its
short-term rate has remained unchanged at -0.1%.)
In the eurozone and the UK, markets had been expecting
substantial further tightening in 2023 to overcome
persistent inflation pressures. The ECB proceeded
with its expected half a percentage point rate increase
in March, to 3%, one day after the Credit Suisse
emergency loan. The following week, both the BoE and
the Fed raised rates by 25 basis points, and the Swiss
National Bank increased rates by 50 basis points. While
policymakers noted that bank stress tightened financial
conditions, and therefore replicated some of the effects
of higher rates, they also emphasised that the tools for
dealing with financial and price stability are separate
and that monetary tightening can proceed alongside
interventions to stabilise banks. The ECB’s messaging
has been interpreted as the most hawkish, causing the
euro to strengthen against the US dollar in March.
In contrast to these advanced economies, rate increases
in emerging markets were generally more pre-emptive,
typically starting in 2021. With inflation past its peak in
many jurisdictions, markets had, even before the March
2023 global banking disruptions, judged that emerging
markets’ policy rates were at or near their peaks. While
limited rate cuts are now expected where central banks
had previously raised rates most aggressively (such
as Mexico and Brazil), the general theme in emerging
markets is for rates to remain close to current levels
for an extended period (through 2024). In South Africa,
market pricing (from forward rate agreements) initially
downplayed the chances of any rate change at the March
2023 MPC meeting, pricing the prevailing repo rate of
7.25% as the peak rate for the cycle. But this positioning
moved in March, with an increase of 25 basis points
priced in by the time of the MPC announcement, and
Market expectations for US policy rate

Two-year US bond yield

Federal funds rate (upper limit)

Per cent
Sep
Nov

Source: Bloomberg

Jan
Mar
May
Jul
Jan
Mar

Equity market performance

MSCI SA

MSCI World

MSCI China

MSCI EM

Index: 3 Jan 2022 = 100
Sep
Nov

Sources: Bloomberg and SARB

Jan
Mar
May
Jul
Jan
Mar

APRIL 2023
7.5% becoming the expected peak rate. The actual decision –
an increase of 50 basis points to 7.75% – surprised markets,
and repo expectations promptly shifted higher, with the peak
rate moving up to around 8%. Markets currently anticipate
rates to stay around this level until 2024.
Domestic financial market
developments
For the period under review, South African markets
have reacted both to the changes in global conditions,
described above, as well as a series of adverse domestic
developments. These events have had their strongest effects
on the exchange rate of the rand. As a high beta currency,
defined as one that is relatively sensitive to broader market
movements, it is unsurprising that the rand appreciated in line
with the emerging market trend through the closing months
of 2022, and then depreciated again until March 2023. The
depreciation period was, nonetheless, more extreme than
would have been expected given the normal relationships with
global conditions, with the rand around 9% weaker through
the period November 2022 to February 2023 than would be
predicted solely from historical beta values to the US dollar. This
divergence was likely due to specific local factors, including the
consistently negative local news flow for this period, starting in
December 2022 with sudden market fright at the prospect of a
resignation by the President, and followed by an intensification
of load-shedding as well as South Africa’s greylisting by the
Financial Action Task Force on 24 February.
After some inflows at the start of the year, non-residents reduced
their holdings of South African government bonds, on a net
basis, during February and March 2023. While non-residents’
share of total bond holdings has declined substantially in
recent years, from a high of 42.0% in 2017 to around 26.0%
currently, this statistic obscures growth in the stocks of nonresident holdings. Total foreign sector ownership of bonds, for
instance, was R705 billion at the end of December 2017 and
R851 billion in February 2023.25 The decline in non-residents’
share therefore primarily reflects rapid growth in overall bond
issuance, rather than sustained reductions in non-resident
holdings.
Continued growth in the supply of bonds to fund an expanded
government borrowing requirement has exerted further upward
pressure on yields and contributed to a steepening of the
yield curve for the period under review. The price adjustments
have largely been orderly, however, with bond market liquidity
staying in normal ranges through the first quarter of 2023,
despite the global banking disruptions in March.
25 These figures incorporate the three kinds of bonds reported in
the National Treasury data, namely inflation linkers, floating rate
bonds and fixed rate bonds. The floating rate instruments were
introduced in 2022 and therefore do not appear in the 2017 data.

JPMorgan EM FX

Rand/US$

Index: Jan 2022 = 100
Sep
Nov

Emerging market and rand exchange rates
Sources: Bloomberg and SARB

Jan
Mar
May
Jul
Jan
Mar

1 Nov 2022

End-2022

Jan 2023 MPC

13 Apr 2023

Per cent
South African bond market yield curve
Sources: Bloomberg and SARB
R186
R2030
R213
R2032
R2035
R209
R2037
R2040
R214
R2044
R2048

APRIL 2023
South African equities have also held up relatively well in
challenging circumstances, with the FTSE/JSE All-Share Index
(Alsi) achieving new highs (passing the 80 000 mark) and
outperforming both emerging market and developed country
indices over the past year. This, in part, reflects benefits of
higher commodity prices and a weaker exchange rate. The
relative strength of the local index also has to do with weakness
elsewhere. Advanced economy stocks have suffered from
sharply higher interest rates, with the US S&P 500 declining
by about 16.0% from its end-2021 peak. The emerging market
aggregate equity performance has also been affected by
China’s slower growth.
Monetary policy implementation
The transition to the SARB’s new surplus-based monetary
policy implementation framework (MPIF) was completed in
August 2022. Over the subsequent six months, the money
market surplus averaged R45.95 billion, in line with the broad
objective of keeping liquidity between R40 billion and R60 billion
for this period. Demand at weekly repo auctions remained
subdued, averaging R2.65 billion, with no auction being fully
allotted26 – confirming that the market was amply supplied
with cash. Benchmark rates, including the South African
Benchmark Overnight Rate (Sabor) and the Johannesburg
Interbank Average Rate (Jibar), continued to adjust upwards
in line with the MPC hiking cycle. Forward rates, as implied
from short-term foreign exchange swaps, have remained
much closer to the repo than they were before the reform,
and rates in the repo market, an important source of liquidity
for non-banks, have likewise compressed towards the SARB
policy rate. Overall, this speaks to effective implementation of
monetary policy, with the transmission of MPC decisions into
financial markets enhanced by the new MPIF.
Starting in February 2023, National Treasury began withdrawing
its remaining Sterilisation Deposit Account (NTSDA) balances
– a total of R41.2 billion. These funds, originally deposited at
the SARB to support the accumulation of foreign exchange
reserves, have now been moved to the market, expanding the
surplus liquidity position. This drawdown had been anticipated
for some time – a portion of these funds had already been
withdrawn in 2020 – and was one consideration informing the
adoption of the surplus MPIF.27
To accommodate the drawdown, the market liquidity position
was raised from R50 billion to R80 billion, and banks were at
the same time provided with larger quotas where they could
earn the repo rate on excess funds, in line with the tiered floor
structure of the new MPIF. The expansion of the surplus was
undertaken in three steps of R10 billion each, at two-week
intervals, starting in early March and ending in early April. The
26 The weekly offering has been unchanged at R7 billion.
27 Under the previous system, it had become difficult to create
an adequate shortage, and the NTSDA drawdown would
have overwhelmed what remained of that shortage.
R billions
Sep
Oct
Nov

Dec
Jan
Feb
Mar
Apr
Liquidity position and target range
Source: SARB

Surplus

Shock buffer

Central liquidity target

APRIL 2023
balance of the NTSDA funds was drained separately, which
explains the R11.2 billion gap between the change in the
market surplus and the total NTSDA balance. This draining
was primarily achieved through a bond maturity in the SARB’s
monetary policy portfolio, which removed R6 billion from the
market at the end of February.
The NTSDA drawdown also provided an opportunity to finetune the new framework, based on lessons learnt in the first six
months of its operation. Specifically, while overall the reformed
MPIF has performed as desired, there is evidence that quotas
were too constraining. Accordingly, quota rules have now been
revised so that they are larger for all banks, not just in absolute
terms but also relative to the liquidity surplus.28
An immediate consequence of this reform has been reduced
usage of the penalty rate standing facility, which pays the
repo less 100 basis points on above-quota deposits. From
September 2022 to February 2023, balances in this facility
averaged R3.1 billion; they have subsequently averaged
around R1 billion. This leaves the standing facility usage
more symmetrical, with long and short positions reflecting
idiosyncratic bank frictions rather than systemic pressures in
either direction.
The adjustment in quotas will facilitate banks’ liquidity
management. Larger quotas are also expected to reduce the
market power that banks with unused quota space have over
banks with excess cash, which has exerted some downward
pressure on interbank rates. (These averaged the repo less
6 basis points prior to this fine-tuning exercise). The objective
of the quota changes is to minimise incentives for banks to
trade reserves at rates away from the repo, in either direction,
so as to transmit the policy stance adopted by the MPC as
precisely as possible.
28 Whereas before the drawdown liquidity averaged R46 billion against quotas
of R67.2 billion, liquidity is now expected to be close to R80 billion against
quotas of R140 billion. The ratio of liquidity to quota space has therefore
fallen from about 68% to about 57%. The changes to the banks’ quotas
were detailed in a notice on the SARB website published on 10 February,
available at
financial-markets/notices/fmd-notices/2023/notice-revisions-to-bankquotas-february2023.pdf
R billions

SF loans, +100 basis points

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

reform
Onset
Mar–Dec

Transition New
MPIF
Quota
reform
Source: SARB
PreCOVID
Jan–Feb

-3
-2
-1


APRIL 2023
Box 5 The fiscal case for lower inflation

E Mengus, G Plantin and J Barthélemy, ‘Large public debts need not
imply fiscal dominance’, VoxEU, 2021.

E M Leeper, ‘Equilibria under ‘active’ and ‘passive’ monetary and fiscal
policies’, Journal of Monetary Economics 27(1), 1991, pp 129–147.

According to the Sargent–Wallace framework, a fiscal-dominant regime
would exist when there is an active fiscal policy and a passive monetary
policy regime. A monetary-dominant regime would exist when there is a
passive fiscal policy and an active monetary policy regime. Refer to
L Soobyah, M Mamburu and N Viegi, ‘Is South Africa falling into a
fiscal-dominant regime?’, South African Reserve Bank Working Paper
Series No. WP/23/02, March 2023.
dam/sarb/publications/working-papers/2023/WP%202302.pdf

Public debt rose from 35% of gross domestic product (GDP) in 2012 to
68% of GDP in 2022.

Refer to L Soobyah and N Viegi, ‘Can National Treasury do contractionary
monetary policy?’, South African Reserve Bank Working Paper Series
No. WP/22/10, August 2022.
sarb/publications/working-papers/2022/WP%202210.pdf
Fiscal and monetary policy coordination, facilitated by clear targets
and guidelines, is critical to ensuring sustainable macroeconomic
policy setting. High levels of public debt, caused by ‘active’ policy
can constrain a central bank’s capacity to tame inflation, a
phenomenon termed ‘fiscal dominance’.1 In such cases, fiscal policy
creates conditions in which monetary policy is unable to respond to
higher inflation because a rise in interest rates will further weaken the
fiscal position.2 By contrast, ‘passive’ policy is guided by targets that
are understood to be sustainable, or not giving rise to more inflation
and higher risk premiums.
Over the period 2000–2020, three regimes are identified for South
Africa: (i) from 2006 fiscal policy moved from an active policy to a
passive one, in which debt was reduced; (ii) from 2012 fiscal policy
became active again and remained in the active regime until recently;
and (iii) in 2016, monetary policy became less active. Thus, the
current constellation is one of an active fiscal policy and a less active
monetary policy, which suggests a fiscal-dominant regime.3
Estimates for South Africa show that a shock to fiscal policy raises
inflation in all the regimes identified, but this response is more
persistent in the latest regime change around 2016.
South Africa’s public debt has risen markedly over the past decade,
causing long bond yields to rise and remain elevated. A deterioration
in fiscal metrics results in a higher risk premium and higher yields on
longer-dated bonds to compensate for higher fiscal risk, thereby
steepening the yield curve and impacting strongly on long-term
investment costs for the economy as a whole. Annual debt-service
costs now rise considerably faster than nominal gross domestic
product (GDP), resulting in lower real public resources over time and
reflected in the higher sovereign risk premium.4
When fiscal policy increases the country risk premium, this can, in
turn, depreciate the exchange rate and put upward pressure on
inflation.5 These effects are longer-lasting and more severe in the
fiscal-dominant regime.
Sustainable public finances alternatively enhance the efficacy of
monetary policy and facilitate the achievement of lower inflation.
When debt and risk premiums are high, fiscal consolidation lowers
borrowing costs for the public and private sectors, supporting
investment and freeing up real resources for public spending. These
benefits can be significantly reinforced with lower inflation and
interest rates, particularly when debt stocks need to be rolled over.

Percentage points

Response of inflation to a fiscal shock
Source: SARB
Quarters


Response of risk premium to a fiscal shock
Per cent

Source: SARB
Quarters

Per cent
Response of exchange rate to a fiscal shock

Source: SARB
Quarters

APRIL 2023
Real economy: structural
constraints a hard bind
The domestic economy grew by 2.0% last year – a sharp
slowdown from the 4.9% growth recorded in 2021. On a
quarter-on-quarter basis, GDP showed substantial volatility
in 2022 as the economy was subjected to multiple adverse
shocks. After the upside surprise in the third-quarter GDP
outcome (revised upwards to 1.8%), GDP declined by 1.3% in
the fourth quarter.29 The contraction in GDP was broad-based,
as 7 out of 10 sectors registered negative growth in the quarter.
Looking ahead, growth prospects remain dim as South Africa’s
longstanding structural challenges, particularly inadequate
electricity supply and the deterioration in the ports and railway
infrastructure, have become more binding. The GDP growth
forecast over the medium term has been revised lower since
the October 2022 MPR, and now averages only 0.8% (1.6%
in the October 2022 MPR). Potential growth is revised even
lower at -0.2% this year, before rising to 1.0% by 2025. Speedy
and judicious implementation of the announced reforms for
the energy and logistical sectors could spur private sector
investment and lift growth over the medium term.
Recent economic developments
Growth in 2022 was volatile, moving from positive to negative
growth between the quarters. Following the steady 1.8%
quarter-on-quarter growth rate recorded in the third quarter
of 2022 (revised upwards from the initial estimate of 1.6%),
the South African economy shrank by 1.3% in the fourth
quarter – a contraction much deeper than both the market
and the SARB’s expectations. The decline was broad-based
across the sectors, except for the transport, storage and
communication, the construction and the personal services
sectors. On balance, this brought the 2022 annual growth rate
to 2.0% – a marked slowdown from the 4.9% growth recorded
in 2021, but still above the average growth rate for the postglobal financial crisis (2010–19) period.
A broad sectoral overview shows that the primary sector grew
by 2.0% in the second half of 2022. This, however, masks
the volatility observed during the period as both agriculture
and mining production expanded in the third quarter before
contracting in the fourth quarter.30 The secondary sector
reported almost no growth in the second half of the year
(0.1%), weighed down by the electricity and manufacturing
29 GDP grew by 1.6% in the first quarter of 2022, followed by a contraction
of 0.8% in the second quarter.
30 After a sharp rebound to 30.5% quarter on quarter in the third quarter of
2022, agriculture production contracted by 3.3% in the final quarter.
Similarly, mining production declined by 3.2% in the fourth quarter after
growing by 1.6% in the third quarter.
Percentage change from quarter to quarter

Real gross domestic product*
Source: Stats SA
* Seasonally adjusted


Real GDP growth*
Sources: Stats SA and SARB
Percentage change

Actual

Sep 2022

Mar 2023
* Dotted lines indicate forecasts


APRIL 2023
subsectors. Despite the electricity supply constraints, the
manufacturing subsector showed some resilience in the
third quarter of 2022, rebounding from the supply chain and
production disruptions occasioned by the floods in KwaZuluNatal (KZN) in April 2022. However, manufacturing production
slipped back into negative territory in the final quarter.31 The
construction subsector appears to have picked up momentum,
as it contributed positively (albeit marginally) to growth in both
quarters. Nevertheless, the sector remains 23.0% below prepandemic activity levels. In the tertiary sector, while all the
subsectors contributed positively to GDP in the third quarter,
this momentum was reversed in the fourth quarter, as the
trade, finance and general government services subsectors
contracted. Despite this negative performance in the final
quarter, overall, the tertiary sector still performed the strongest,
at 3.4%, in the second half of the year.
At the start of the second half of 2022 there was optimism
for a reasonable rebound in GDP growth, underpinned by the
resumption of normal economic activity following the KZN
floods, the complete unwinding of all remaining COVID-19
restrictions, and the end of a prolonged strike in the goldmining sector. The optimism did not last, however, as domestic
economic activity was undermined by a multitude of adverse
factors, the most significant being the higher incidence and
intensity of load-shedding, worsening logistical bottlenecks
and much higher inflation. On the combined effect of ageing
electricity
infrastructure
and
maintenance
challenges,
electricity supply constraints have continued to worsen in
recent months.32 The upside surprise in the third-quarter GDP
outcome suggests that the economy is gradually becoming
more resilient to the scourge of load-shedding. However, the
SARB’s view is that the adverse economic impact of loadshedding remains marked, particularly at the higher stages of
load-shedding, as was seen in the fourth quarter of 2022.
Another important factor that has increasingly become a
binding constraint to growth is logistical bottlenecks. Over
the past 10 years, inefficiencies in the country’s transport and
export logistics, specifically at ports and on rail networks,
has led to the inability to keep up with the growing volume of
freight transported, resulting in more freight being transported
on roads. In 2022, coal exports through the Richards Bay Coal
Terminal (one of the key coal export terminals in the world)
plunged to about 50 million tonnes – the worst performance
since 1993.33 This came at a time when both the demand for
and price of coal were high, and thus robbed the economy of
billions in export receipts.
31 Manufacturing grew by 1.6% in the third quarter of 2022
but then declined by 0.9% in the fourth quarter.
32 As much as 11 700 gigawatt hours (GWh) of power could
have been shed by the fourth quarter of 2022, much higher
than an estimate of around 2 500 GWh shed in 2021.
33 D Erasmus, ‘Transnet dysfunction hits Richards Bay coal
exports back into 1993’, Business Day, 26 January 2023.
Percentage points
Contributions to GDP (production side)
Source: Stats SA
Mining
Electricity
Trade
Finance
Total*
Agriculture
Manufacturing
Construction
Transport
Other
Q1
Q2
Q3
Q4

-2
-1

* Percentage change from quarter to quarter

Percentage points
Estimated direct impact of load-shedding on GDP

Source: SARB

Index: 2012 = 100
Volume of land freight transportation
Sources: Stats SA and SARB


Road freight

Rail freight

APRIL 2023
Despite the underlying macroeconomic weakness across
industries, labour market outcomes have proven resilient
over the past few quarters. The number of employed people
continued to grow in the second half of 2022, predominantly
driven by the trade, construction and manufacturing sectors.
On a year-on-year basis, the number of employed people
increased by around 1.4 million in the fourth quarter of 2022.
Encouragingly, the number of unemployed people also showed
year-on-year declines over the same period, which helped
to bring the unemployment rate down to 32.7% in the fourth
quarter of 2022 – 2.6 percentage points lower than what was
recorded in the fourth quarter of 2021.34 Looking ahead, there
is no expectation of significant gains in employment over the
near term in the absence of a marked improvement in firms’
operating environment.
Alongside the labour market recovery, nominal wages continued
to rise in 2022, with the average level of wage settlements at
6.0% – higher than the average of 4.4% recorded in 2021.35
Looking ahead, wage settlements are expected to average
between 5.8% and 6.7% in 2023 – largely above the SARB’s
inflation projection of 6.0% – which implies that workers should
realise some real wage gains this year. Meanwhile, real total
earnings in the formal sector declined to R811.1 billion in the
fourth quarter of 2022, from R831.8 billion a year earlier, with
the biggest declines coming from the construction, community
services and finance sectors.
Despite the elevated inflation and rising interest rates, household
consumption continued to drive the modest growth recorded
over the past year. After contracting by 0.3% quarter on quarter
in the third quarter of 2022, household consumption grew by
0.9% in the fourth quarter, resulting in growth of 2.6% for the
year as a whole. Spending in the services subcategory showed
solid recovery in the fourth quarter, after a decline in the prior
quarter. Of more concern, however, is that expenditure in nondurable goods declined over the last three quarters of 2022,
underpinned by reduced spending in the food, beverages
and tobacco subsector. This outlines the adverse effects of
high prevailing food price inflation, especially for low-income
consumers whose average consumption basket is dominated
by food. By contrast, and despite consumer sentiment that
has been relatively weak for high- and middle-income earners,
the steady growth in spending on durables, particularly
transport equipment, suggests that real income pressures on
these groups seem to have been contained thus far. However,
the recent Bureau for Economic Research (BER) Consumer
Confidence Survey indicates that consumers’ outlook on their
financial positions deteriorated in the first quarter of this year,
with consumers rating the present time as inappropriate to buy
durable goods. This suggests that the outlook for household
demand remains highly uncertain over the near term.
34 Quarterly Labour Force Survey, various editions.
35 Andrew Levy Wage Settlement Survey, December 2022.

Index: 2019 = 100
Employment
Source: Stats SA

Trade

Manufacturing

Construction

Total
Percentage change from quarter to quarter
-15
-10
-5

Wage trends

Compensation

of employees

Total salaries and wages

in total non-agricultural sector
Sources: Stats SA and SARB
Percentage points
Contributions to personal consumption expenditure*
Source: Stats SA
Services (51.7%)
Non-durables (29.9%)
Semi-durables (8.4%)
Durables (10.0%)
* Weights in brackets
Q1
Q2
Q3
Q4


APRIL 2023
The past year marked a solid recovery in total fixed investment
to 4.7% in 2022, up from 0.2% in the previous year. This positive
outcome was driven by the private sector and mostly came
through in the first half of 2022. This sector’s performance
slowed in the latter half of the year, contracting by 0.6% in the
third quarter, before rebounding to 1.5% in the final quarter.
Meanwhile, capital expenditure by general government is the
only subcategory that posted growth across both the third and
fourth quarters of 2022 – a notable change in direction after
several quarter-on-quarter declines over the past two years.36
By contrast, fixed investment by public corporations declined
in the fourth quarter after the marginal increase posted in the
third quarter.
Growth outlook
Looking ahead, the outlook for growth is marred by
uncertainty. The SARB now forecasts 2023 GDP growth at
0.2% – broadly unchanged from the 0.3% projection at the
January MPC meeting but notably lower than the 1.4% that
was expected at the time of the October 2022 MPR. This
downward revision reflects the effects on economic activity
of the continued deterioration in electricity supply over recent
months and the assumption that not much of an improvement
can be expected over the near term. Load-shedding is now
expected to detract as much as 2.0 percentage points from
growth in 2023 – double the impact estimated at the time of
the October 2022 MPR.
Over the medium term, the expectation is that the negative
impact of load-shedding will be partially offset as more
businesses invest in backup energy solutions and/or as
Eskom’s maintenance improves the energy availability factor.
However, the SARB’s view is that this benefit is most likely to
materialise in the latter years of the forecast horizon, when
growth is projected to improve to 1.0% and 1.1% in 2024 and
2025 respectively. Although improving, the pace of growth
remains tepid and still below the pre-COVID-19 historical
average (2010–19) of 1.7%. The medium-term outlook hinges
on the government’s ability to implement the much-needed
structural reforms to unlock the economy’s growth potential
that, currently, is estimated at a mere 0.8% in 2024 and 1.0%
in 2025.
Despite pressures on household balance sheets, household
spending is still expected to contribute positively to growth
over the medium term. This aligns with the view that inflation
will continue to moderate, returning to the target band by the
latter half of this year and, in turn, improving consumers’ real
disposable incomes. Household consumption is projected
to rise by 0.6%, 0.5% and 0.9% in 2023, 2024 and 2025
respectively.
36 Public sector outlays increased by 3.5% and 2.5% quarter on
quarter in the third and fourth quarters of 2022 respectively.


Percentage points
Contributions to gross fixed capital formation

Source: Stats SA

General government

Public corporations

Private business enterprises

Total*
* Percentage change
R billions (constant prices)
Listed capital expenditure projects
Source: Nedbank
General government
Private business enterprises
Public corporations
Total

Evolution of potential GDP growth*
Source: SARB


Percentage change


Oct 2022

Mar 2023
* Dotted lines indicate forecasts

APRIL 2023
Alongside household consumption, private investment is
again expected to support growth over the medium term,
having increased by 7.3% in 2022. Total investment growth,
however, is projected to be somewhat flat at around 2.5%
per year over the medium term. The subdued trajectory for
fixed investment reflects low business confidence, intensified
load-shedding and an uncertain political outlook. Impetus to
investment, however, could emanate from the 2023 Budget
in which National Treasury forecasts a steady growth in the
public capital expenditure budgets over the Medium-Term
Expenditure Framework (MTEF).37 The implementation of these
capital projects could spur further recovery in the construction
sector which has, in recent times, benefitted from energyrelated projects. The government, however, has had a history
of underspending in capital budgets, with capital expenditure
approximately R184 billion below the estimates over the past
five fiscal years.38
The green energy capital expenditure momentum that was
ushered in by the recently announced energy sector reforms
is expected to pick up pace over the medium term, supported
by the R5 billion worth of renewable energy tax incentives
for private corporates provided for in the 2023 Budget.
According to the Energy Action Plan progress update given
by the National Energy Crisis Committee in January 2023, a
pipeline of approximately 100 private sector energy projects
is expected to add 9 000 megawatts of power to the grid
over the next few years. Additionally, more projects under
the Renewable Independent Power Producer Programme
(REIPPP) Bid Window 5 are expected to reach financial close
and for construction to begin over the medium term. While the
above should support investment in self-generation, and thus
total investment over the medium term, it is likely that firms may
trade this against investment in machinery and equipment.
Moreover, likely delays in the procurement and construction
of these projects present a downside risk to the outlook for
investment.
Amid slower global demand and ongoing domestic logistical
bottlenecks, export growth is projected to be weaker over the
forecast horizon. Terms of trade have now declined below their
pre-pandemic level and are expected to deteriorate further,
reflecting the continued correction in South Africa’s commodity
export prices, while import prices have remained elevated.39
37 Public sector investment is projected at 4.6% in 2023
and to decline to 1.5% over the medium term.
38 2023 Budget Review.
39 The terms of trade index declined from 122.9 in 2021 to 111.6 in 2022.
R billions
Public sector investment
Source: National Treasury


Estimate
Outcome
Forecast

APRIL 2023
Macro balances
The current account and its drivers
South Africa’s current account balance has exhibited marked
volatility over the past year, although the trend has been
downward since it peaked at a surplus of 5.2% of GDP in
the third quarter of 2020. The current account slumped into
an unexpected deficit in the second quarter of 2022 but
recovered somewhat in the third quarter, before falling back
into a deficit in the fourth quarter.40 For the full year it averaged
-0.5% of GDP. The global shocks over the past three years
that underpinned South Africa’s current account strength have
largely dissipated, while domestic idiosyncrasies have come
to the fore, constricting exports. The current account balance
is now forecast to remain in deficit over the medium term. The
return to a sustained deficit has happened earlier than the
SARB had forecast just a few quarters ago.
The trade balance, which peaked at a surplus of 9.1% of GDP
in the second quarter of 2021, has declined sharply, and
reached a 14-quarter low of 0.2% of GDP in the fourth quarter
of 2022. On a monthly basis, for the first time since April 2020,
the trade balance recorded deficits in December 2022 and
January 2023. This deterioration reflected the widening deficit
in manufacturing since October 2022 as well as the shrinking
surplus in mining. The trade balance, however, improved
significantly in February due to a sharp drop (32.7%) in
mineral imports which boosted the mining surplus, alongside
an improvement in the manufacturing deficit. The trend in
manufacturing is mostly explained by the movements in net
imports of machinery and equipment and of motor vehicles.
Overall, these trends largely explain the deterioration in the
terms of trade, which are currently at levels last seen in 2018.
The services, income and transfer account (SIT) remains in
deficit, as payments continue to outweigh receipts. However,
as a percentage of GDP, the deficit in the SIT account recorded
an 11-quarter low in the fourth quarter of 2022 at 2.8%. This
can mostly be attributed to falling income payments amid rising
income receipts from the volatile dividend component. Direct
investment dividend payments normalised in the second half
of 2022, following exceptionally high payments in the third
quarter of 2021 and the second quarter of 2022. Meanwhile,
travel receipts improved further in line with the liberalisation of
travel following the lifting of all COVID-19-related restrictions.
40 The current account recorded a surplus of 0.05% of GDP in the third
quarter followed by a deficit of 2.6% of GDP in the fourth quarter.
Percentage of GDP
Current account
Source: SARB

-6
-4
-2

Services, income and transfers balance
Trade balance
Current account balance
Percentage of GDP

Mining and manufacturing trade balances
Source: SARB


Mining

Manufacturing

APRIL 2023
Fiscal balances
Government debt projections have been revised higher, with
debt now expected to stabilise at 73.6% of GDP in the 2025/26
fiscal year – 2.2 percentage points higher and two years
later compared with the 2022 Medium Term Budget Policy
Statement (MTBPS) projections. The deterioration comes on
the back of government’s takeover of R254 billion of Eskom’s
debt.41 Debt-service costs continue to rise over the medium
term and are projected to consume 19.8% of the main budget
revenue in 2025/26.
Despite underlying macroeconomic weakness, National
Treasury projects the tax-to-GDP ratio to increase from 25.4%
to 25.7% over the medium term. Projected revenue collections
for the 2022/23 fiscal year have been revised upwards from
the 2022 MTBPS, mainly on the back of higher corporate
income tax collections that continue to benefit from elevated
(albeit falling) commodity prices amid a weaker rand, as well
as unexpected strength in manufacturing and finance sector
collections in the second half of 2022.
Overall, the deterioration in public debt in the 2023 Budget, on
the heels of an assessed improvement in the 2022 MTBPS,
underscores the risk being placed by state-owned companies
on the fiscus. This, together with the persisting structural
factors that continue to constrain growth and the wage bill,
presents substantial fiscal risks over the medium term.
Conclusion
The domestic economy has shown solid recovery from the
pandemic and related shocks over the past two years – growing
by 4.9% and 2.0% in 2021 and 2022 respectively. Growth in
2022 could have been higher had it not been for the extensive
load-shedding and transport logistical bottlenecks. These
constraints have continued to worsen and pose a serious threat
to the growth outlook over the short to medium term. Slower
global growth is expected to weaken demand for commodities
and further constrain domestic growth, as well as adversely
impact the current account and fiscal revenues. Growth is
now projected at 0.2% in 2022 – significantly lower than the
1.4% projected in the October 2022 MPR – and to rise only
marginally over the medium term. Judicious implementation of
the reforms announced for the energy and logistics sectors
should enhance the efficacy of basic economic infrastructure,
which should spur investment and lift potential growth.
41 Approximately R168 billion is a capital injection and R86 billion is interest
payments. Compared to the R66 billion Medium-Term Expenditure
Framework (MTEF) provisions made in the 2022 MTBPS, this now
equates to R118 billion worth of additional borrowing in the MTEF.
Public debt*
Source: National Treasury

Percentage of GDP


2022 Budget

2022 MTBPS

2023 Budget
* Dotted lines indicate forecasts


APRIL 2023
Box 6 Unpacking the SARB’s 2022 GDP
forecast errors

The standard deviation for the four quarters of GDP growth (quarter-onquarter percentage change) in 2022 was around 1.4%, the second
highest standard deviation since 2000.

Near-term forecasts are from the SARB’s supply-side model, which
incorporates high-frequency data. This forecast is used to inform the
starting point for the Quarterly Projection Model (QPM).

The bulk of load-shedding (about 70%) during the third quarter of 2022
fell into stages 1 and 2, with stage 2 by far the most prevalent.
In 2022 the South African economy was hit by a range of domestic
shocks, beginning with floods in KwaZulu-Natal (KZN) in the second
quarter, followed by an increase in the intensity of load-shedding
from the third quarter onwards. This was coupled with a marked
deterioration in Transnet’s services in the fourth quarter. Such large
shocks increase the volatility of output and make forecasting of nearterm gross domestic product (GDP) more challenging.1 This box
unpacks and explains the South African Reserve Bank’s (SARB)
GDP forecast errors during 2022.
There was a notable gap between the SARB’s (and market
consensus forecasts) quarterly near-term GDP forecasts and the
official releases in all the four quarters of 2022. Near-term forecast2
errors were mainly driven by large forecast errors in finance and
agriculture, with these two explaining more than 50% of the forecast
error in each quarter.
The biggest forecast error was in the third quarter of 2022, where
GDP surprised significantly to the upside. The SARB had expected
the intensified load-shedding experienced during the quarter to
derail growth. Agricultural activity, however, rebounded strongly
(30.5% quarter on quarter) partly due to harvests being delayed from
the second to the third quarter and explains about 60% of the thirdquarter forecast error. Meanwhile, some energy-intensive sectors
managed to post robust growth in the third quarter despite an
increase in the intensity of load-shedding in the quarter, suggesting
that firms have largely adapted to operating under modest levels of
load-shedding.3 The better performance of these sectors in part
reflected the resumption of production at several manufacturing
plants and the reactivation of supply chains disrupted by the April
KZN floods.
The quarter with the smallest forecast error was the second quarter
of 2022, implying that the impact of the KZN floods on GDP was well
captured in the forecast. On average, the Reuters median quarterly
2022 GDP forecasts outperformed the SARB’s, with a mean
absolute percentage error (MAPE) of 0.81, relative to the SARB’s
MAPE of 0.94. Although quarterly near-term GDP forecast errors
were large in 2022, the forecasts at each Monetary Policy Committee
(MPC) meeting for annual GDP growth for 2022 oscillated around
2.0% – the official annual growth outturn.
Percentage points
Contributions to 2022 GDP error
(forecast minus actual)
-2
-1

2022Q1
2022Q2
2022Q3
* Percentage change from quarter to quarter
Sources: Reuters, Stats SA and SARB
2022Q4
Agriculture, forestry and fishing
Finance, real estate and business services
Manufacturing
Mining and quarying
GDP (SARB)*
Reuters median
Underestimated
Overestimated
Trade, catering and accommodation
Transport, storage and communication
Other

APRIL 2023
From the demand side, the SARB had persistently understated
exports, imports, investment and inventories in all forecast rounds
since the January 2020 MPC meeting. Investment spending was
anticipated to continue to recover at a slow pace, given slowing
growth, low business confidence and heightened uncertainty.
However, total investment spending surprised to the upside, mainly
due to robust growth in spending on machinery and equipment. This
category alone contributed 4.0 percentage points to the 4.7%
growth in total investment in 2022. This may be linked to an increase
in activity in renewable energy projects. These projects, and
investment more broadly, exhibit high import content. Thus, the
surprise in investment may help to explain the significant upward
surprise in the SARB’s imports forecast.4 Meanwhile, exports also
surprised to the upside, in line with the upward surprise in South
Africa’s trading partners’ growth and the marked increase in the
eurozone’s demand for coal.

Because imports were underestimated, their contribution to the GDP
forecast errors was overestimated.


Percentage points
Contributions to 2022 GDP error (forecast minus actual)
Sources: Stats SA and SARB
MPC meetings
Overestimated
Underestimated
Household expenditure
Gross fixed capital formation
Exports
General government expenditure
Change in inventories
Imports
QPM
Reuters (median)


Sep
Nov
Jan
Mar
May
Jul
Apr
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Jan
Mar
May
Jul

APRIL 2023
Price developments:
signs of stickiness
Headline inflation jumped markedly higher in 2022 and
averaged 6.9%, from 4.5% in the previous year. Fuel and food
price inflation pulled headline inflation higher for the better part
of the year. However, going into 2023, moderating fuel inflation
helped to ease pressures somewhat, resulting in headline
inflation softening to 7.1% in March 2023 from its peak of 7.8%
in July 2022. Meanwhile, core price pressures have continued
to build, spurred initially by sharp increases in core goods
prices, and have now broadened to services. This profile for
core inflation, alongside elevated food price inflation, implies
that a deceleration in headline inflation will remain sluggish in
the near term. Projections are for headline inflation to average
6.0% in 2023 and to return to the midpoint of the target range
by 2025. Risks, however, are tilted to the upside.
Headline inflation surged to 6.9% in 2022, up from 4.5% in
2021 and 3.3% the year before. Headline inflation appears
to have peaked in July 2022 when it recorded 7.8% – a
13-year high. During 2022, domestic inflation was mostly
driven by the acute increases in food and fuel prices, reflecting
the disruptions to global markets for food and oil occasioned
by the war in Ukraine. Core inflation also accelerated strongly
during this period, exerting upward pressure on headline
inflation. Within the core basket, core goods inflation has risen
faster than services inflation. The sharp increase in core goods
inflation reflected rand weakness and higher global goods
inflation, while services inflation was subdued by the less-thanexpected increases in housing and medical insurance inflation.
Although inflation pressures from fuel prices have eased
considerably since the October 2022 MPR, in line with the
moderation in Brent crude oil prices, food price pressures have
intensified. This reflects both domestic drivers as well as the
impacts of a weaker rand exchange rate on both import and
export prices. Nonetheless, headline inflation has moderated
somewhat, reaching 6.9% in January 2023 before edging up
slightly to 7.1% in March 2023, and is expected to return to the
target range in the third quarter of this year. However, risks to
inflation remain tilted to the upside, underpinned by pressures
on food and core inflation.

Percentage change over 12 months

Headline and core inflation
Sources: Stats SA and SARB

Midpoint

Headline

Core
3–6% inflation target range
Non-core inflation

Source: Stats SA

Food and non-alcoholic beverages

Non-core

Fuel (rhs)
-2

Percentage change over 12 months (both scales)
-30
-20
-10

APRIL 2023
Food and non-alcoholic
beverages inflation
Food and non-alcoholic beverages (NAB) inflation registered
9.2% in 2022, up from 6.1% in 2021. Food and NAB remained
a major driver of domestic inflation throughout the past year
and accounted for nearly a quarter of headline inflation in 2022.
Inflation for this category is expected to remain elevated in the
near term, but to return to the midpoint of the target range
from 2024.
Having risen from 6.0% in April 2022 to 12.4% in December,
food and NAB inflation climbed further, reaching 14.0% in
March 2023. While the increases early on largely reflected
sharply higher global food inflation, pressures at the global
level have eased considerably. The persistence of food and
NAB inflation into 2023 reflects the delayed pass-through of
declining global food prices due to a weaker rand exchange
rate as well as domestic drivers that have become more
pronounced.42
Food price pressures have become more broad-based, with
90% of the food and NAB basket rising above 6.0% since
November 2022. However, the bulk of the upward pressure
emanates from two components, namely bread and cereals
inflation and meat inflation. Inflation for bread and cereals
accelerated sharply in the second half of 2022 and reached
20.5% in February 2023, before easing slightly to 20.3% in
March, reflecting the delayed pass-through of moderating
global agricultural commodity prices and the impact of a
weaker rand exchange rate which pushed up the import and
export parity prices. Bread and cereals inflation is expected
to moderate in the months ahead due to base effects as well
as the depletion of higher cost stocks and their replacement
with stocks sourced at somewhat softer commodity prices.
Risks to the near- and medium-term outlook include loadshedding along with the increased likelihood of a switch from
wetter La Niña weather conditions to hotter and drier El Niño
conditions later in 2023 – both of which could see a drop in
domestic agricultural production.
Meanwhile, meat inflation rose for much of 2022 and continued
its upward trend into 2023, recording 11.4% in February 2023,
before moderating somewhat to 10.6% in March. The higher
meat inflation is due to a combination of domestic and global
supply-side factors. Lower slaughter activity in the beef market
in 2022 due to the ongoing foot and mouth disease and high
feed costs have combined to raise meat prices.43 At the same
42 The United Nations (UN) Food and Agriculture Organization (FAO) food
price index decreased by 20.5% in US dollar terms but only by 3.1%
in rand terms in March 2023.
43 A Khoza, P Mnguni and P Mathuloe, ‘The “steaks” are high: domestic
factors might keep food inflation running hot’. South African Reserve
Bank Research Brief Series No. 2023/04, Pretoria: South African
Reserve Bank, March 2023.
-2

Percentage points
Contributions to food inflation

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


Other food

Vegetables

Oils and fats

Milk, cheese and eggs

Meat

Bread and cereals

Food and non-alcoholic beverages*

Actual

Mar 2021

Sep 2021

Mar 2022

Sep 2022

Mar 2023
Percentage change over four quarters

Food and NAB inflation*

* Dotted lines indicate forecasts
Sources: Stats SA and SARB
-8
-4

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

* Dotted lines indicate forecasts

Actual

Mar 2021

Sep 2021

Mar 2022

Sep 2022

Mar 2023

APRIL 2023
time, poultry prices have been impacted by intensified loadshedding as well as supply constraints arising from the
spread of avian flu in the northern hemisphere, negating the
benefits from the suspension by government of anti-dumping
duties in August 2022. The expectation, however, is for meat
inflation to moderate somewhat in the near term, benefitting
from lower input costs as grain commodity prices soften.
The high feed costs have also pushed prices for milk, cheese
and eggs higher, while localised flooding due to heavy rains
and electricity supply disruptions have affected the distribution
and storage of milk products, resulting in increased spoilage.
After averaging 6.7% in 2022, inflation for milk, cheese and
eggs is projected to remain elevated in 2023.
Overall, food inflation is expected to remain elevated and to
average 9.9% in 2023. While global factors kept food and NAB
inflation elevated for most of 2022, the dynamics have shifted
to domestic drivers. Risks to food and NAB inflation are to
the upside.
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

Actual

Mar 2021

Sep 2021

Mar 2022

Sep 2022

Mar 2023
-2

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

* Dotted lines indicate forecasts
Consumer food price inflation (March 2023 forecasts)
Percentage change over four quarters, September 2022 forecasts in brackets
Actual
Forecast
Actual
Forecast
Weight
2012–22*
2022*
2023*
2022Q3
2022Q4
2023Q1
2023Q2
2023Q3
2023Q4
Food and non-alcoholic beverages


* Annual average percentage change
Sources: Stats SA and SARB

APRIL 2023
Oil price developments
After peaking at US$113 per barrel in the second quarter of
2022, Brent crude oil prices continued to moderate through
the second half of the year, and averaged US$101 per
barrel in the third quarter and US$89 per barrel in the fourth
quarter. Brent crude oil prices moderated further in the first
quarter of 2023, averaging lower at US$81 per barrel.44
The SARB, however, expects oil prices to average slightly higher
at US$87 per barrel this year on increased demand from China
and the residual uncertainty related to the war in Ukraine.45
Oil prices are forecast at US$85 per barrel in 2024 and
US$80 per barrel in 2025. Lingering structural supply-side
issues such as limited surplus capacity in the Organization
of the Petroleum Exporting Countries (OPEC) and continued
output restrictions by OPEC will likely keep prices elevated
above pre-pandemic levels over the forecast horizon.
Administered price inflation
Consistent with past trends, in 2022 administered prices
increased at rates that were much higher than the upper limit of
the SARB’s 3–6% target range, which pulled headline inflation
higher. Administered prices rose by 14.0% in the year, mostly as
a result of sharply higher fuel inflation which peaked at 56.2%
in July 2022.46 Fuel inflation has since dropped significantly as
oil prices have fallen, recording 8.1% in March 2023. Fuel prices
are expected to deflate over the forecast period, mainly driven
by base effects.
Over the past 15 years, electricity prices have persistently
inflated at rates substantially above headline inflation, and
2023 is no exception (Box 2). Electricity prices are expected
to increase by 17.5%, effective for a period of 12 months
from July 2023, following the National Energy Regulator of
South Africa’s (NERSA) announcement of a 18.49% increase
in electricity prices for municipal bulk purchases in March.
Electricity inflation is forecast at 14.5% in 2024 and 10.9%
in 2025, but risks are to the upside, particularly given the
increased use of OCGTs to minimise load-shedding. Higher
inflation is also expected for education fees at 6.5% in
March 2023, up from 4.4% in March 2022 and 4.1% for 2021.47
44 Alongside the heightened fears of a global recession, US crude oil
inventories have increased for 10 consecutive weeks since
mid-December 2022, pushing oil prices lower.
45 Western sanctions such as the Group of Seven (G7) price caps
and European Union (EU) sanctions imposed on Russian crude oil
and oil products could lead to tightness in the global oil market.
46 Part of the increase in fuel inflation reflected the markedly higher
global Brent crude oil prices, a component which, technically, is not
regulated, as well as a surge in international fuel refinery margins,
higher transport costs and a generally weaker rand exchange rate.
47 Media reports have mentioned tertiary education fees increasing, on
average, between 5.1% and 7.1% for 2023.
co.za/content/government-urged-regulate-university-fee-increases
US$ per barrel

Evolution of oil price forecasts
Source: SARB
MPC meetings

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

Percentage change over four quarters
Fuel inflation*
-30
-20
-10

* Dotted line indicates forecast

Sources: Stats SA and SARB
Percentage change over 12 months

Electricity prices*
Sources: Stats SA and SARB

Actual

Nov 2022

Mar 2023
* Dotted lines indicate forecasts

APRIL 2023
However, given the sharp disinflation in fuel prices (29.0%
of the administered price basket), regulated price inflation is
forecast to decelerate markedly to 4.1% in 2023.
Core inflation
The dynamics for core inflation over the past year largely
reflected core goods price movements. After remaining
subdued (averaging below 3.0%) and well below services
inflation since 2018, core goods inflation rose to 3.2% in 2021
and accelerated further to 5.0% in 2022. This momentum has
persisted, with core goods inflation rising to 6.4% year on
year in February 2023 and remaining elevated at this level in
March 2023. Services inflation also gained momentum in 2022
but remained well below the midpoint of the target range and
averaged 3.9% for the year as a whole. With upside pressures
from both core goods and services prices, core inflation
jumped to 4.3% in 2022, up from 3.1% in 2021. Although it
averaged below the target midpoint for the year, core inflation
has been above the 4.5% level since September 2022
and recorded 5.2% in both February and March 2023.
The QPM projects core inflation to average 5.1% in the current
year before moderating to 4.8% in 2024 and settling at the
midpoint of the target range in 2025.
The surge in core goods inflation is attributed to high global
goods inflation and the depreciated rand exchange rate that
has raised the domestic prices for exchange rate-sensitive
core goods.48 After having bounced around the 6.0% level
since April 2022, new motor vehicle inflation accelerated to
7.2% in January 2023, before moderating slightly to 7.0%
in March 2023. Similarly, alcoholic beverages and tobacco
inflation jumped to 6.5% in November 2022 and has oscillated
around that level since then, recording a slightly moderated
6.2% in March 2023.
48 Exchange rate-sensitive core goods make up 62.5% of the core goods
basket and include alcoholic beverages and tobacco (43.4%),
vehicles (40.9%), household contents (12.7%) as well as spare parts
and accessories (3.0%).
Percentage change over 12 months
Components of core inflation
Sources: Stats SA and SARB
Core goods
Core inflation
Services

3–6% inflation target range
Midpoint
Percentage change over 12 months
Core goods inflation
Sources: Stats SA and SARB

Core goods
Exchange rate-sensitive core goods

APRIL 2023
Services inflation picked up pace in 2022, spurred by the
rotation of demand from goods back to services, as well as
the spillover of higher fuel and food costs to transportation
and to hotels and restaurants. Subdued housing and medical
insurance inflation helped to slow the rise in services inflation in
2022.49 The SARB expects housing inflation to rise further as the
demand for rentals increases as a result of reduced mortgage
affordability. With respect to medical insurance, medical aid
schemes again applied more muted price increases in 2022.
Accordingly, the inflation rate for this category averaged
4.3% in 2022 – a rate of increase last seen in 2005. As the
demand for health services returns to normal levels following
the relaxation of the COVID-19-induced curtailments, medical
insurance inflation is expected to edge closer to its longerterm average of around 9.0%. Medical insurance inflation
is projected to accelerate to 7.0% in 2023, in line with the
announced price increases that range from 5.9% to 9.5% for
49 Housing inflation averaged 2.7% in 2022. Average rental escalations
have remained below pre-pandemic levels (2.8% in 2022 versus
3.7% in 2018 and 3.0% in 2019).
Headline inflation (March 2023 forecasts)
Percentage change over four quarters, September 2022 forecasts in brackets
Actual
Forecast
Actual
Forecast
Weight
2011–22*
2022*
2023*
2022Q3
2022Q4
2023Q1
2023Q2
2023Q3
2023Q4

Annual average percentage change
**
CPI excluding food, non-alcoholic beverages, fuel and electricity
***
Combines actual rentals and owners’ equivalent rent
Sources: Stats SA and SARB
-5

Drivers of services inflation

Source: Stats SA

Transport

Restaurants and hotels

Total housing

Total services (rhs)
Percentage change over 12 months (both scales)

APRIL 2023
2023. With somewhat higher housing and medical insurance
inflation, services inflation is expected to rise to 4.9% in 2023,
before slowing and settling at 4.5% in 2025.
Medium-term inflation outlook
The QPM uses four fundamental drivers to explain the evolution
of core (headline) inflation over the medium term. These are
(i) inflation expectations, (ii) the real unit labour cost (ULC) gap,
(iii) the real exchange rate gap, and (iv) the output gap. Of these,
inflation expectations, the real ULC gap and the real exchange
rate gap are expected to exert upward pressure on inflation
over the forecast period, while the output gap bounces around
its neutral level.
Since the October 2022 MPR, inflation expectations have
drifted higher. Of concern is that the two-years-ahead inflation
expectations – the SARB’s preferred indicator for medium-term
inflation expectations – have diverged from the SARB’s official
inflation forecast over the same horizon. Specifically, the twoyears-ahead inflation expectations increased from 5.3% in the
third quarter of 2022 to 5.6% in the fourth quarter, and remained
elevated at 5.5% in the first quarter of 2023. Meanwhile, the
SARB projects inflation to be around the midpoint of the target
range in two years’ time. There are signs that expectations,
especially for the business sector, are becoming somewhat
unanchored (Box 8).
Over the medium term, growth in real salaries is expected to
increase to 0.3% in 2023 and 1.3% in 2024, up from -1.6% in
2022. At the same time, productivity growth is expected to
slow from 1.7% in 2022 to 0.3% and 0.2% in 2023 and 2024
respectively.50 Higher real wage growth combined with lower
productivity growth over the forecast period will raise the real
ULC gap and add to inflationary pressures.
A depreciated rand exchange rate raises both the price of
imported goods and the real marginal cost of production,
and this pushes inflation higher. The real exchange rate gap
denotes the extent to which the real exchange rate deviates
from its estimated equilibrium level, and thus exerts passthrough pressures. The starting point for the rand/US dollar
exchange rate at the March 2023 MPC meeting was R17.82.
The rand/US dollar exchange rate is expected to depreciate
further over the medium term, and to average R17.96 in 2023
and R17.67 in 2024. Given this starting point, the model
estimates that the rand, in real terms, is 10.5% undervalued
relative to its equilibrium. This real exchange rate gap is not
expected to close during the current forecast window given the
elevated risk premium that is now projected to remain above
50 Nominal salary increases are expected to average 6.4%, 6.2% and 5.1%
over the medium term (i.e. for 2023, 2024 and 2025 respectively).
Percentage change over four quarters

National rental vacancy versus escalations
Source: TPN Credit Bureau
-2

National rental vacancy rate

Escalations

2022Q3

2022Q4
Per cent

All
Financial
analysts
Business
Trade
unions
Source: BER

2022Q1

2022Q2
Two-years-ahead inflation expectations

2023Q1
-15
-10
-5

Percentage change over four quarters
Real wages and productivity growth

Source: SARB

Real wages

Productivity growth
Forecast

APRIL 2023
its equilibrium throughout the forecast horizon. Consequently,
the exchange rate remains inflationary throughout the forecast
horizon, keeping core inflation sticky.
The output gap has effectively closed, having narrowed
from -2.0% in 2021 to -0.6% in 2022. It is forecast to remain
closed over the medium term, implying that demand and
supply conditions will be broadly in balance, which suggests
neither upward nor downward inflationary pressures. However,
demand–supply imbalances could emerge from loadshedding-induced supply bottlenecks.
Conclusion
While fuel and food inflation pushed headline inflation
sharply higher for much of 2022, declining fuel inflation has
underpinned its slowdown in recent months. Food inflation
remains elevated, primarily reflecting domestic pressures.
Meanwhile, core inflation pressures have broadened and are
expected to intensify further before beginning to ease. Rising
core inflation is expected to slow the pace of disinflation in
headline inflation in the near term. Nonetheless, disinflation is
expected to continue. Headline inflation is forecast to return to
the 3–6% target range in the third quarter of 2023, but to the
midpoint of the target range only in 2025.


Per cent
Real effective exchange rate gap*

Source: SARB

Sep 2022

Mar 2023
* Values < 0 imply undervaluations


Percentage of potential output
Output gap estimates

Source: SARB

Sep 2022

Mar 2023

APRIL 2023
Box 7 Why the large 2022 inflation forecast errors?

Initially, expectations were for the war to be short-lived. As a result, at
the March 2022 MPC meeting, fuel inflation in 2022 was projected to
average 26.1%, but the actual outcome was 34.3%. Similarly, food
inflation was forecast to average 6.1% in 2022, lower than the actual
outcome of 9.2%.

Over the medium term, core inflation in the QPM is explained by
inflation expectations, the real exchange rate, the real unit labour cost
gap and the output gap. These are typically slow-moving variables.
By contrast, the exogenous factors of food and energy inflation tend
to be quite volatile, making it relatively more challenging to forecast
headline inflation.
This box reviews the Monetary Policy Committee (MPC) inflation
forecast errors for 2022. Inflation forecasts serve as important
guideposts to policymakers when deciding on the interest rate
path and help the MPC to evaluate inflationary pressures over the
medium term. To be considered useful, forecasts must be accurate
and unbiased. The South African Reserve Bank (SARB) conducts
routine inflation forecast error analysis to assess its performance
and to facilitate continuous refinements in its model assumptions,
model structure and imposed judgements.
The first inflation forecast for 2022 was published in January 2020,
and projected headline inflation at 4.5%. This forecast was
consistent with the design of the Quarterly Projection Model (QPM)
which endogenously uses the policy rate to smooth business
cycle fluctuations to ensure inflation settles at the midpoint of the
target range over the medium term. The realised inflation for 2022,
however, was substantially higher, at 6.9%. A large part of the
upside surprise was due to major unforeseen shocks at the time
of the forecast, namely the COVID-19 pandemic restrictions and
the Russia–Ukraine war. The supply chain bottlenecks associated
with the COVID-19 lockdowns, alongside Russia’s war in Ukraine,
pushed food and fuel inflation sharply higher. Forecast accuracy
improved markedly once Russia’s invasion of Ukraine became
known, but the forecast still understated overall inflation. This
was unsurprising given the significant uncertainties regarding the
duration and impact of the war as well as the extent of supply-side
disruptions, particularly for key commodities.1
Although the QPM is theoretically better suited to forecast core
inflation than headline inflation,2 the uncertainties related to
second-round effects following the COVID-19 pandemic resulted
in core inflation forecasts also being biased to the downside.
A closer inspection reveals that core goods inflation projections
were also understated, while services inflation forecasts were
overestimated in most MPC meetings. The upside surprise in
core goods inflation was mainly on account of higher global
goods inflation, a weaker rand exchange rate, and sharply higher
transport costs. By contrast, services inflation was overstated as
medical schemes and educational institutions continued with more
muted price increases against the SARB’s expectation of an early
normalisation in these prices. From the QPM medium-term inflation
drivers’ perspective, the somewhat subdued real unit labour cost
(ULC) gap helped to slow the rise in services inflation.
In summary, the large forecast errors for 2022 headline inflation
were mainly due to the unexpected major supply shocks that
significantly lifted non-core inflation. Core inflation forecasts fared
somewhat better, with mean absolute forecast errors of 0.1 and
0.5 percentage points for the current year and one-year-ahead
forecasts respectively, compared with the 0.6 and 2.5 percentage
points for headline inflation forecasts for the current year and oneyear-ahead respectively. The SARB forecasts that were generated
after Russia’s invasion of Ukraine were marginally better than
the Reuters median forecasts, with a root mean square error of
0.7 compared to the Reuters median of 0.8.
Percentage change

Evolution of key inflation forecasts for 2022
Source: SARB
MPC meetings

Non-core

Headline

Core

Actual headline
Jan
Mar
May
Jul
Sep
Apr
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Nov
Headline overestimation

Headline underestimation

Fuel

Headline

Core goods

Food


Services

Electricity

Reuters
Percentage points
Inflation forecast errors
Source: SARB
MPC meetings


Jan
Mar
Apr
May
Jul
Sep
Jan
Mar
May
Jul
Sep
Nov
Nov
Jan
Mar
May
Jul
Sep
Nov

APRIL 2023
Box 8 South Africa’s business inflation
expectations anchor (mean) has drifted

The Bureau for Economic Research’s (BER) Inflation
Expectations Survey covers businesses, financial analysts, trade
union representatives and households. South Africa is one of a
few countries worldwide with a long-running and detailed
business sector inflation expectations dataset.

See R Reis, ‘Losing the inflation anchor’, Brookings Papers on
Economic Activity, September 2021; R Reis, ‘The burst of high
inflation in 2021–22: how and why did we get here?’, Bank for
International Settlements Working Papers No. 1060,
December 2022.

The standard deviation of each distribution is a measure of the
spread (the higher the number, the higher the spread): two years
ahead: 0.97, 1.17, 1.10 and 1.56 for 2019, 2020, 2021 and 2022
respectively.

The drifting anchor is also a feature of the ‘aggregate’ inflation
expectations. One possible explanation for the surge in business
inflation expectations is the sharply higher factory-gate prices.
Since 2017, the South African Reserve Bank (SARB) has
communicated a preference for inflation, and inflation
expectations, to stabilise closer to the midpoint of the 3–6%
inflation target range. Inflation expectations, which were
anchored around the upper limit of the target range for most
of the 2010s, appear to have responded positively to the
communicated SARB preference, having drifted lower and
closer to the midpoint by 2019 and remaining stable through
2021. Recently, however, inflation expectations, particularly
for business and unions, have shifted markedly higher. The
two-years-ahead business expectations jumped to 6.2% in
the first quarter of 2023, from 6.0% in the previous quarter.
This marks a considerable divergence with the SARB’s
medium-term inflation forecasts, which project inflation in two
years’ time at 4.6%, and raises the question whether inflation
expectations are becoming unanchored. This box uses
disaggregated business inflation expectations survey data1 to
assess the stability of the business inflation expectations
anchor and to gauge the prevalence of second-round effects.
Recent global literature2 shows that increased dispersion (or
‘disagreement’) of inflation expectations among respondents
and changes in the skewness of the distributions often
precede sustained deviations from a central point or anchor
(i.e. de-anchoring of inflation expectations). South African
data reveal that, while the means of the distributions of
business inflation expectations have shifted in line with
actual inflation outcomes, the dispersion of the two-yearsahead expectations distribution has increased since 2019.3
In addition, the 2022 distribution is bimodal, with a fatter
right tail, indicating that a relatively larger share of business
respondents expect inflation to be above 6.0% in two years’
time. This evidence suggests that the expectations of parts
of the business population may have become unanchored.4
In addition to informing on ‘anchoredness’, sectoral business
inflation expectations can provide insights about the
evolution of inflationary pressures, including whether they
Proportion

Distribution of two-years-ahead business
inflation expectations

Sources: BER and SARB
4.5%
Per cent

Basis points
Changes in two-years-ahead
inflation expectations*
-50

Motor trade
Construction
Services
Manufacturing
Mining
Wholesale trade
Retail trade
Agriculture
and forestry

Change over 2021

Change over 2022
Sources: BER and SARB
* Q4 mean minus Q1 mean

APRIL 2023
are becoming more generalised. Intuitively, sectors
experiencing an adverse ‘direct’ inflationary shock are
more likely to revise their inflation expectations higher
immediately, while the sectors somewhat removed from
the initial shock only adjust their expectations in subsequent
periods as inflationary pressures broaden. South African
data seem to affirm this thesis. The agricultural and retail
sectors raised their expectations considerably in 2021,
reflecting their proximity to the initial supply shocks.5
By contrast, sectors less likely to have been directly
impacted by the supply shocks, such as the services
sector, saw smaller changes to expectations in 2021 but
much larger adjustments in 2022, suggesting the presence
of spillover and second-round effects.6
Drifting inflation expectations and broadening inflationary
pressures largely explain the SARB’s monetary policy
tightening over the past year. Under conditions of high
credibility, monetary policy can ensure that expectations
remain relatively anchored and help contain the degree to
which second-round effects take hold.

Such supply shocks included rising fertiliser prices on higher
energy prices and geopolitical tensions as well as supply chain
constraints affecting retailers.

W Simbanegavi and A Palazzi, ‘Mind second-round effects!
The effects of food and energy inflation on core inflation in South
Africa’. SARB Economic Note No. EN/2022/09, October 2022.

APRIL 2023
The domestic economy was subjected to multiple shocks
in the past year, including the floods in KZN in April 2022,
intensified load-shedding and a marked deterioration in
freight rail and port logistics. These shocks mostly explain
the wild swings in quarterly output over the past year.
Load-shedding has diminished the economy’s capacity to
produce, resulting in GDP growth (and potential growth)
being revised sharply lower to 0.2% (-0.2%) in 2023,
from 1.0% (0.8%) at the time of the October 2022 MPR.
Both GDP and potential growth have been marked down
substantially over the medium term.
The persistent rise in domestic food inflation, despite the
moderation in global food prices, reflects domestic factors
such as the depreciated rand exchange rate and foot and
mouth disease. Load-shedding has also added to inflation
and remains a risk factor. Core inflation has risen strongly
over the past year and has shown substantial momentum
going into 2023. Core inflation pressures have emanated
mostly from core goods prices. Although services inflation
has remained relatively subdued and averaged 3.9% in
2022, risks are to the upside, given the tightening rental
housing market, rising medical insurance inflation and wage
inflation risks. Inflation expectations have risen markedly,
reflecting the repeated upward surprises in headline
inflation and possible second-round effects.
Amid persistent inflation pressures, the MPC raised the repo
rate by a cumulative 150 basis points over the review period,
bringing the nominal repo rate to 7.75% in March 2023.
The real repo rate has also risen, albeit at a slower pace
due to upward inflation surprises, but remains below its
estimated neutral rate of 2.5%. The aim of policy is to anchor
inflation expectations more firmly around the midpoint of the
target band and to increase the confidence of attaining the
inflation target sustainably over time. Guiding inflation back
towards the midpoint of the target band within a reasonable
time frame can reduce the economic costs of high inflation.
The efficacy of monetary policy can be enhanced by
structural reforms which improve its transmission into the
broader economy. Ensuring an adequate supply of energy,
improving transport logistics, easing product and labour
market regulations, lowering the influence of administered
prices on headline inflation, and reducing the fiscal risk
should support investment and growth while moderating
domestic inflationary pressures. Such a constellation
presents the prospect of achieving permanently lower
interest rates in the future.
Conclusion
Over the past three years the global economy has endured
multiple major shocks, particularly the COVID-19 pandemic
and Russia’s war in Ukraine. Although the COVID-19 shock
has largely faded, it has, together with the war in Ukraine,
given rise to several aftershocks – including strained global
supply chains and tight food, energy and labour markets –
which have resulted in sharply higher and persistent global
inflation. Central banks globally have responded with more
aggressive policy rate hikes in their fight to overcome
inflation, and this has contributed to the sharp slowdown
in global growth.
Global inflation likely peaked in the third quarter of 2022
and has moderated somewhat going into 2023.51 Core
inflation, however, remains elevated in many jurisdictions,
reflecting strong demand and firm labour markets, and
possible second-round effects from the high food and fuel
inflation in 2022. The resilience of demand, alongside tight
labour markets, suggests that interest rates may need to
rise further to bring global inflation down sustainably.
The SARB estimates trading-partner growth to have
declined to 3.5% in 2022, from 7.0% in 2021, and expects
it to decline further to 2.0% in 2023 as credit conditions
tighten amid banking stresses in the US and eurozone.
Growth is expected to improve slightly over the outer
period, however, in part reflecting better growth outcomes
in China following the country’s relaxation of its zero-COVID
policy. Meanwhile, high global interest rates have brought
debt sustainability considerations to the fore, particularly
for developing economies with weak macroeconomic
fundamentals. The strong US dollar has added to
inflationary pressures worldwide.
Over the past year, South Africa also experienced sharply
rising inflation and slowing growth. After peaking at 7.8% in
July 2022, headline inflation eased to 6.9% in January 2023,
in line with the moderation in global oil prices, before edging
slightly higher to 7.1% in March 2023. Inflation is expected
to return to the 3–6% target band in the third quarter of
2023, and to settle at 4.5% in 2025. Meanwhile, growth
slowed sharply to 2.0% in 2022, from 4.9% in 2021, and is
projected to fall steeply to just 0.2% in 2023. Although the
domestic inflation and growth trajectories have paralleled
global trends, the domestic outcomes have primarily been
shaped by idiosyncratic domestic factors.
51 See the IMF’s April 2023 WEO.

APRIL 2023
Statement of the Monetary Policy Committee
24 November 2022
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

According to the IMF’s October 2022 Global Financial Stability Report, eight low-income countries are in debt distress and 30 are at high risk of
distress (out of 69 countries considered low-income countries—among which there are some frontier markets).

Global growth in the QPM model is a trade-weighted average of South Africa’s trading partners. Global growth in 2024 is forecast unchanged at 2.4%,
before rising to 3.1% in 2025.

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

Potential growth for 2022 is revised lower at 0.4%, 0.5% in 2023 and unchanged at 1.1% in 2024. For 2025, potential growth is forecast at 1.5%.

The Brent crude oil assumptions in September were US$105, US$92 and US$85 for 2022, 2023 and 2024 respectively. The current forecast is for oil
prices to remain unchanged at US$85 for 2024 and is US$80 for 2025.

Commodity export prices are now forecast to rise by 1.2% for the year as a whole (down from 2.3%), before falling in 2023 by about 18.1% and by a
further 11.0% in 2024.

In September, a current account balance for 2022 was expected to be 0.2% of GDP, -1.0% in 2023 and -1.6% in 2024.
High inflation and weak economic growth continue to shape
global conditions alongside monetary and fiscal policy
responses. Russia’s war in Ukraine drags on, impairing trade
and raising prices of a wide range of energy, food and other
commodities. Growth in the United States is set to weaken,
and remains low in China. Although energy constraints have
eased somewhat in the euro area, recession risk is high.
Additionally, a number of developing economies face debt
distress, exacerbated by tighter global financial conditions.1
Policy normalisation has accelerated and monetary
conditions are likely to tighten further to ensure inflation
declines from its current high rates. With long-term borrowing
costs high and fiscal positions extended, there is less
policy space available for major counter-cyclical efforts to
increase economic growth. In several economies, including
South Africa, ongoing consolidation of fiscal positions will
support disinflation. Asset values in major markets have
also declined sharply, and investor appetite for riskier assets
remains weak.
Taking these and other factors into account, the South
African Reserve Bank’s (SARB) forecast for global growth in
2023 is revised lower to 1.9% (from 2.0%).2 The International
Monetary Fund’s (IMF) October’s forecast for global growth
is 3.2% in 2022 and 2.7% in 2023.
We now expect the South African economy to grow by
1.8% (from 1.9%) this year. Despite considerable volatility
in monthly indicators, GDP growth of 0.4% is still expected
in the third quarter. Fourth quarter growth is forecast to be
only 0.1%, largely due to record load-shedding.
Over the medium term, and despite stronger private
investment, the forecast takes into account lower commodity
prices, higher inflation and interest rates. On the supply
side, the forecast incorporates an assumption of increased
load-shedding, which could deduct 0.6 percentage points
in 2023.
As a result of these factors, the economy is forecast to
expand by 1.1% in 2023 (from 1.4%) and by 1.4% in 2024
(from 1.7%), below previous projections.3 GDP growth of
1.5% is forecast for 2025.
With a low rate of potential, our current growth forecast
leaves the output gap slightly larger in the near term, before
closing in the third quarter of 2023.4
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, with oil prices relatively stable and export prices lower.
Compared to September, our oil price forecast is broadly
unchanged, averaging US$102 per barrel for 2022 and
US$92 per barrel in 2023.5 South Africa’s export commodity
price basket has come down from earlier peaks.6
As a result of weaker export developments, the current
account balance is expected to be -0.2% of GDP this year,
falling to -1.5% in 2023 and -1.9% in 2024.7 The current
account balance in 2025 is expected to be -2.1% of GDP.
Although near-term fiscal risk has eased on the back of
better tax revenue, a weaker commodity price trajectory than
currently expected could increase risk. Financing conditions
for rand-denominated bonds have been generally tight
and more volatile in recent months. Ten-year bond yields
currently trade at about 10.7%.
Policy normalisation in major economies and the slower
growth in China have contributed to the depreciation of
many emerging market currencies, including the rand.
The implied starting point for the rand forecast is R17.76
(2022Q4) to the US dollar, compared with R16.91 (2022Q3)
at the time of the previous meeting.
Globally, economic growth is slowing and prices have fallen
for some goods and transport services. However, price
pressures continue to spread from goods to services and

APRIL 2023
wages.8 Our estimate for inflation in the G3 is revised higher
to 7.3% in 2022 (from 7.0%), and 4.1% in 2023 (from 3.5%).
The forecast for 2024 is unchanged at 2.1%.9
Even though South Africa’s fuel price inflation for the year
remains exceedingly high, some easing of global oil prices
has led to forecast revisions in the last few MPC meetings.
Fuel price inflation for this year is now forecast at 33.3%
(down from 33.5%), falling to 0.8% in 2023 (down from 1.1%).
Local electricity price inflation is slightly higher at 10.7% in
2022, 9.0% in 2023, and is unchanged at 10% in 2024.
Global food price inflation has declined. However, local
food price inflation is revised up due in part to the weaker
exchange rate and is now expected to be 8.8% in 2022 (up
from 8.1%). Food price inflation is revised higher to 6.2%
(from 5.5%) in 2023 and unchanged at 4.2% in 2024.
The SARB’s forecast of headline inflation for this year and
next is slightly higher at 6.7% and 5.4%, respectively. In
2024 and 2025, we expect headline inflation of 4.5%.
Our forecast for core inflation is unchanged at 4.3% in
2022, and is higher than previously expected at 5.5% (from
5.4%) in 2023. The forecast for 2024 is unchanged at
4.8%, and 4.5% is projected for 2025. Services inflation is
broadly unchanged, and continues to be driven by expected
spillover effects and steadily rising unit labour costs. Core
goods price inflation is forecast somewhat higher at 5.7%
for next year.10 The forecast for average salary growth is
broadly unchanged.11
Risks to the inflation outlook are assessed to the upside.
Despite easing of global producer price and food inflation,
Russia’s war in Ukraine continues, with adverse effects
on global prices generally. The oil market is expected to
remain tight, with upside risk to prices. Electricity and other
administered prices continue to present clear medium-term
risks. Given low public sector wage assumptions, and high
petrol and food price inflation, considerable risk still attaches
to the forecast for average salaries.

Inflation in agricultural commodities decelerated sharply in 2022Q3 with the UN FAO food price index increasing by 8.7% (compared to a 25.5%
increase in 2022Q2), helped lower by a sharp decline in cereals and vegetable oils. Consequently, the assumption used for the forecast for USDdenominated world food prices in 2022 was revised lower from 17.8% to 14.7%.

The G3 comprises the United States, the eurozone and Japan. The latest CPI inflation in the respective components sits at 7.7%, 10.6% and 3.7%.
We expect G3 inflation of 2.0% in 2025.
10 Core goods refers to total CPI goods excluding food and 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, 5.7% in 2023, 4.9% in 2024, and 4.5% in 2025.
11 Average salaries were expected to be 5.1%, 6.7% and 5.6% for 2022, 2023 and 2024 at the time of the September meeting. For the November
meeting, the respective figure are 5.3%, 6.7%, 5.4%, and 4.8% for 2025.
12 The weighted average of G3 policy rates is forecast to be 3.6% in 2023 (up from 3.1%), 3.4% in 2024, and 2.4% in 2025.
13 For 2024, the BER survey of inflation expectations in Q3 moderated to 5.3% (from 5.4%). The Q3 survey had 2022 expected inflation at 6.5% and
5.9% for 2023.
14 At the median, market analysts (Reuters Econometer) in November expect inflation to be higher at 6.8% (from 6.7% in September) in 2022, 5.4% in
2023 and 4.6% in 2024.
15 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 5.27% for the 5-year and 6.14% for the 10-year break-even, while 15-year break-even inflation sits at 6.43%.
Higher than expected inflation has pushed major central
banks to accelerate the normalisation of policy rates. This
has tightened global financial conditions and raised the risk
profiles of economies needing foreign capital. G3 interest
rate levels for the forecast period are now expected to be
significantly higher than in September.12 On balance, and
with few exceptions, capital flow and market volatility will be
elevated for emerging market assets and currencies. While
the rand has recovered somewhat, it has depreciated by
about 7% year to date against the USD.
Inflation expectations increased strongly over this year and
remain high. Expectations of future inflation surveyed in
the third quarter of this year had earlier increased to 6.5%
for 2022 and 5.9% for 2023.13 Expectations for inflation in
2022 based on market surveys have increased to 6.8%.14
By contrast, long-term inflation expectations derived from
the five-year break-even rates in the bond market have
moderated to 5.27%.15
In the second quarter of this year, headline inflation breached
the upper end of the target range, and is forecast to remain
above it until the second quarter of 2023. Headline inflation
is only expected to sustainably revert to the midpoint of
the target range by around the second quarter of 2024.
The forecast takes into account the policy rate trajectory
indicated by the SARB’s Quarterly Projection Model (QPM).
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.
Against this backdrop, the MPC decided to increase the
repurchase rate by 75 basis points to 7% per year, with effect
from 25 November 2022. Three members of the Committee
preferred the announced increase. Two members preferred
a 50 basis point increase.
The level of the repurchase rate is now above the level
prevailing before the start of the pandemic. The revised
repurchase rate remains supportive of credit demand in the
near term, while raising rates to levels more consistent with

APRIL 2023
16 The forecasted trajectory for the repurchase (repo) rate implies a rise in the inflation-adjusted repo rate from -1.5% in 2021 to -1.0% in 2022, 1.7% for
2023, and 2.3% in 2024. The real repo level for 2025 is expected to be 2.4%. The real repo rate calculation here is based on the one-quarter-ahead
inflation forecast and refers to annual average rates.
the current view of inflation and risks to it. The aim of policy
is to anchor inflation expectations more firmly around the
mid-point of the target band and to increase confidence of
attaining the inflation target sustainably over time.16
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.

Per cent
2017 2018 2019 2020 2021 2022 2023 2024 2025
Repurchase rate forecast (November 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

APRIL 2023
Summary of assumptions: Monetary Policy Committee
meeting on 24 November 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 62 and 63.

APRIL 2023
Summary of selected forecast results: Monetary Policy Committee meeting
on 24 November 2022
Selected forecast results (annual)
Actual
Forecast
Steady
state


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

Steady
state

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

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.

APRIL 2023
Statement of the Monetary Policy Committee
26 January 2023
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

According to the IMF’s October 2022 Global Financial Stability Report, eight low-income countries are in debt distress and 30 are at high risk of
distress (out of 69 countries considered low-income countries—among which there are some frontier markets).

Global growth in the QPM model is a trade-weighted average of South Africa’s trading partners. Global growth in 2024 is forecast higher at 2.6%
(from 2.4%), before rising to 3.1% in 2025, unchanged from the November meeting.

The number of days of expected load-shedding in 2023 has been increased to 250 days from 100 days. In 2024 the number of days was revised up to
150 days from 40 days. Load-shedding of 100 days has been assumed for 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 has been revised lower for stages 1 and 2. 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.

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

Potential growth for 2022 was revised higher to 0.7%, and lowered in 2023 to 0.0%. It is also revised lower to 0.6% for 2024 (from 1.1%) and to 1.1%
for 2025 (down from 1.6%).

The Brent crude oil assumptions are US$85 for 2024 and US$80 for 2025 (unchanged).

Commodity export prices rose by 1.4% in 2022.
As this year commences, high inflation and weak economic
growth continue to shape global conditions. Russia’s war
in Ukraine drags on and recession risks remain elevated in
the euro area, even though energy constraints have eased.
Growth prospects for the United States this year are lower.
The growth outlook for China has improved but is likely to
remain modest by historical standards. In the developing
world, a number of economies face debt distress,
exacerbated by tighter global financial conditions.1
Last year, higher-than-expected headline inflation and
rising core inflation led major central banks to accelerate
the normalisation of policy rates. With advanced economy
interest rates likely to increase in the near term, we expect
financial asset prices globally to remain volatile.
Taking these and other factors into account, the South
African Reserve Bank’s (SARB) forecast for global growth
in 2023 is revised slightly lower to 1.6% (from 1.9%).2 We
expect better growth in 2024 at 2.6% (from 2.4%). The
International Monetary Fund’s (IMF) global growth forecast
will be updated later this month.
While the South African economy grew by a relatively strong
1.6% in the third quarter of 2022, the expansion was not
broad-based. We forecast no growth in the fourth quarter.
For the whole of last year, GDP growth of 2.5% is expected
(up from 1.8%).
For 2023, and as a result of extensive load-shedding and
other logistical constraints, the SARB now forecasts GDP
growth of only 0.3%. Given the scale of load-shedding, the
SARB estimates that it deducts as much as 2 percentage
points from growth in 2023, compared to the previous
estimate of 0.6 percentage points.
Over the medium term, the forecast takes into account
ongoing high levels of load-shedding, and more modest
household
spending
and
investment
growth
than
previously. Investment is still positive, but is revised down
due to weaker confidence and lower expected growth. With
declining commodity prices, exports are also forecast to
be less robust. The forecast incorporates an assumption
of increased load-shedding in each year compared to what
was pencilled in at the time of the November meeting.3
As a result of these factors, the economy is forecast to
expand by 0.7% in 2024 (down from 1.4%) and by 1.0% in
2025 (down from 1.5%).4
While economic growth has been volatile for some time,
prospects for growth appear even more uncertain than
normal. A material reduction in load-shedding would
significantly raise growth. There could also be higher
investment in alternative energy sources as firms and
households offset the impact of load-shedding. Upside risks
to global growth could also arise from reduced geopolitical
tensions, a stronger recovery in China, and consequential
increases in commodity export prices.
With a lower rate of potential, our current reduced growth
forecast leaves the output gap around zero, implying little
positive or negative impact on inflation from expected growth.5
After the downward revisions to the GDP forecast, the risks
to the medium-term domestic growth outlook are assessed
to be balanced.
As expected for some time, commodity export prices
continue to trend gradually lower. While oil prices increased
somewhat at the end of last year, compared to November,
our oil price forecast is slightly lower, averaging US$89 per
barrel in 2023.6 South Africa’s export commodity price
basket is expected to continue to decrease, by about 18%
this year, and stabilise in 2025.7
As a result of weaker export outcomes and prospects, the
current account balance is estimated to have been -0.7% of

APRIL 2023
GDP in 2022, and forecast to deteriorate to about - 1.8% for
the next three years.8
Although fiscal risk eased over the past year, weaker
commodity prices and rising state-owned enterprise financing
needs could reverse that positive outcome. Financing
conditions for rand-denominated bonds remain tight.
Ten-year bond yields currently trade at about 10.3%, despite
the expected moderation of inflation over the forecast period.
Policy normalisation in major economies and slower global
growth last year contributed to the depreciation of many
emerging market currencies, including the rand. In recent
months, while better global growth prospects have increased
appetite for riskier assets, the rand has been less buoyant
than other currencies. The implied starting point for the rand
forecast is R16.92 (2023Q1) to the US dollar, compared with
R17.68 at the time of the previous meeting.
Globally, economic growth has slowed and prices decreased
for some goods and transport services. While headline
inflation eased in major economies in December, price
pressures continue to spread from goods to services and
wages.9 Our estimate for inflation in the G3 is unchanged at
7.3% in 2022 and slightly lower to 4.0% in 2023 (from 4.1%).
The forecast for 2024 is lower at 1.8% (from 2.1%).10
Although South Africa’s fuel price inflation for last year
averaged 34.5%, it is expected to be -2.7% in 2023 (down
from 0.7%). Local electricity price inflation has been revised
higher at 12.9% in 2023, 14.5% in 2024, and 10.9% in 2025.
While global food price inflation continues to ease, local food
price inflation is revised up again, in part due to the lagged
impact of the weaker exchange rate. Food price inflation
reached 9.2% in 2022 and is now expected to be 7.3% in
2023 (up from 6.2%) and 4.4% in 2024 (up from 4.2%).
Headline inflation in 2022 came out at 6.9%. The SARB’s
forecast of headline inflation for 2023 is unchanged at 5.4%
and is slightly higher at 4.8% for 2024. In 2025 we still expect
headline inflation of 4.5%.
Our forecast for core inflation is somewhat lower at 5.2%
in 2023 (down from 5.5%) and 4.7% in 2024 (down from
4.8%). Services price inflation in 2023 is forecast to be 5.1%,
lower than the 5.5% previously expected, on the back of

In November, a current account balance of -0.2% of GDP was expected for 2022, -1.5% in 2023 and -1.9% in 2024.

Inflation in agricultural commodities decelerated to 0.1% in 2022Q4 (from 8.7% in 2022Q3) due to vegetable oils and cereals components.
This year global food inflation is expected to be in deflation (after registering 14.3% in 2022) due to base effects and improving supply constraints.
10 The G3 comprises the United States, the eurozone and Japan. The latest CPI inflation in the respective components sits at 6.5%, 9.2% and 4%.
We expect G3 inflation of 1.9% in 2025.
11 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 was 5.0% in 2022 and is expected to be 4.8% in 2024 and 4.5% in 2025.
12 Average salaries were expected to be 5.3%, 6.7% and 5.4% for 2022, 2023 and 2024 respectively at the time of the November meeting. For the
January meeting, the respective figures are 5.2%, 6.9%, 5.5%, and 4.7% for 2025.
13 Unit labour costs are forecast to have grown by 3.6% in 2022, below the forecast of 4.4%. They are expected to rise by 7.7%, 5.3% and 4.1%
respectively in 2023, 2024 and 2025. Productivity per unit of labour is lower due to reduced expected output.
14 The BER Q4 survey of inflation expectations indicated inflation at 6.1% in 2023 (up from 5.9%) and 5.6% for 2024 (up from 5.3%).
15 At the median, market analysts (Reuters Econometer) in January expect inflation to be higher at 5.5% (from 5.4% in November) in 2023, 4.7% in 2024
and 4.7% in 2025.
lower public transport services, housing rental price inflation
and owners’ equivalent rent. Core goods inflation is also
forecast somewhat lower for this year at 5.5% (from 5.7%).11
The forecast for core inflation in 2024 and 2025 is largely
unchanged at 4.7% and 4.5%, respectively.
The forecast for average salary growth is broadly unchanged.12
Despite a benign unit labour cost outcome in 2022, lower
productivity and higher inflation expectations raise the
forecast for this year and next.13
While core inflation in December came out significantly
better than expected, increases in electricity and food price
inflation and higher headline inflation for 2022 as a whole
keep the headline inflation forecast elevated in the near and
medium term.
Risks to the inflation outlook are assessed to the upside.
Despite some easing of global producer price and food
inflation, global price levels remain elevated and Russia’s war
in Ukraine continues. The oil market is expected to remain
tight, particularly as China’s economy rebounds. Electricity
price inflation has shifted significantly higher this year and
next and other administered prices continue to present clear
medium-term risks. Domestic food price inflation continues
to surprise higher and may again. Load-shedding may have
broader price effects on the cost of doing business and the
cost of living. Given sticky petrol and food price inflation,
considerable risk still attaches to the forecast for average
salaries and hence for the trajectory of core inflation.
G3 interest rate levels for the forecast period are similar to
those projected in November, averaging 3.7% in 2023 (up
from 3.6%), 3.3% in 2024, and 2.4% in 2025. Tightened global
financial conditions have raised the risk profiles of economies
needing foreign capital. While the rand appreciated in
December alongside other emerging market currencies, it
has depreciated by about 1.6% against the USD year to date.
Given deteriorated growth prospects, the risk of currency
weakness has increased.
Inflation expectations increased strongly over the past year.
Average expectations of future inflation surveyed in the fourth
quarter of 2022 increased to 6.1% for 2023 and 5.6% for
2024.14 Expectations for inflation in 2023 based on market
surveys sit at 5.5%.15 Long-term inflation expectations derived

APRIL 2023
from the five-year break-even rates in the bond market have
moderated to about 5.0%.16
In the second quarter of 2022, headline inflation breached
the upper end of the target range, and is forecast to remain
above it until the second quarter of this year. Headline
inflation is only expected to sustainably revert to the midpoint
of the target range by the fourth quarter of 2024. The forecast
takes into account the policy rate trajectory indicated by the
SARB’s Quarterly Projection Model (QPM). 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.
Against this backdrop, the MPC decided to increase
the repurchase rate by 25 basis points to 7.25% per year,
with effect from 27 January 2023. Three members of the
Committee preferred the announced increase. Two members
preferred a 50 basis point increase.
The revised repurchase rate remains supportive of credit
demand in the near term, while raising rates to levels more
consistent with the current view of inflation and risks to it.
The aim of policy is 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.17
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.
16 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 4.95% for the 5-year and 5.91% for the 10-year break-even, while 15-year break-even inflation sits at 6.41%.
17 The forecasted trajectory for the repurchase (repo) rate implies a rise in the inflation-adjusted repo rate from -1.7% in 2021 to -1.9% in 2022, 2.0%
for 2023, and 2.3% in 2024. The real repo level for 2025 is expected to be 2.4%. 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 2025
Repurchase rate forecast (January 2023)

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

APRIL 2023
Summary of assumptions: Monetary Policy Committee
meeting on 26 January 2023*
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 62 and 63.

APRIL 2023
Summary of selected forecast results: Monetary Policy Committee meeting
on 26 January 2023
Selected forecast results (annual)
Actual
Forecast
Steady
state


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

Steady
state

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.

APRIL 2023
Statement of the Monetary Policy Committee
30 March 2023
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

According to the IMF’s October 2022 Global Financial Stability Report, eight low-income countries are in debt distress and 30 are at high risk of
distress (out of 69 countries considered low-income countries—among which there are some frontier markets).

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

The number of days of expected load-shedding in 2023 remains unchanged at 250 days, 150 days and 100 days respectively in 2023, 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 has been revised lower for stages 1 and 2. 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.

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

Potential growth for 2022 was revised higher to 0.7%, and lowered in 2023 to 0.0%. It is also revised lower to 0.6% for 2024 (from 1.1%) and to 1.1%
for 2025 (down from 1.6%).

In January, a current account balance of about -1.8% of GDP was expected for the forecast period. Exports are forecast to grow in real terms by only
1.8% this year and 2.3% in 2024. Commodity export prices rose by 1.4% in 2022. South Africa’s commodity export index is forecast to decline by
about 20% this year, and a further 11.7% in 2024, before stabilising somewhat in 2025. Our oil price forecast is also slightly lower than in January,
averaging US$87 per barrel in 2023. The Brent crude oil assumptions are US$85 for 2024 and US$80 for 2025 (unchanged).
As we enter the second quarter of the year, sticky inflation,
sluggish growth and now elevated financial stability risks
mark the global economy. Despite somewhat better growth
outcomes in the first months of the year, we see no material
easing of difficult global economic conditions.
Russia’s ongoing war in Ukraine weighs heavily on European
growth prospects, while financial conditions in the United
States continue to tighten. The growth outlook for China
has improved but is likely to remain modest by historical
standards. Many economies in the developing world face
weaker economic growth and prolonged adverse financing
conditions.1 With inflation and policy rates remaining higher
for longer, and new weaknesses emerging in financial
institutions, we expect global financial markets to remain
volatile.
Taking these and other factors into account, the South
African Reserve Bank’s (SARB) forecast for global growth in
2023 is revised higher to 2.0% (from 1.6%).2 Growth in 2024
is revised slightly lower to 2.5% (from 2.6%). The International
Monetary Fund’s (IMF) January update forecasts global
growth at 2.9% in 2023 and 3.1% in 2024. That forecast will
be updated in April.
The South African economy contracted by 1.3% in the
fourth quarter of 2022, considerably worse than expected
at the time of the January meeting. The contraction was
broad-based, consistent with the extensive load-shedding
experienced in the final three months of the year. For the
whole of last year, GDP growth of 2.0% was achieved,
compared to the 2.5% previously expected.
For 2023, the SARB’s forecast for GDP growth is lowered
slightly to 0.2% from the 0.3% expected in January. As a
result of extensive load-shedding and logistical constraints,
the supply performance of the economy remains severely
impaired. As previously noted, these constraints deduct
2 percentage points from growth this year.
Over the forecast period, we expect household spending and
investment to grow modestly, even as load-shedding and
uncertainty continue to weigh heavily on consumption and
investment decisions.3 Private sector investment is expected
to remain positive, in large part reflecting efforts to overcome
constraints in energy and transport supply. The SARB’s
commodity price index, which in historical terms still remains
above its long-run average, is forecast to continue to ease.
As a result of these factors, the economy is forecast to
expand by 1.0% in 2024 (up from 0.7%) and by 1.1% in 2025
(up from 1.0%).4
Economic growth has been volatile for some time and
prospects for growth appear even more uncertain than
normal. An improvement in logistics and a sustained
reduction in load-shedding or increased energy supply
from alternative sources would significantly raise growth.
Further upside risks to growth could emerge from a
stronger recovery in China, if commodity export prices
rise. Downside risks, however, emanate from more modest
global growth rates and the lower terms of trade and trade
volumes that would follow.
Overall, the risks to the medium-term domestic growth
outlook are assessed to be balanced. Nonetheless, the
domestic and global outlook appears to be highly sensitive
to new shocks. Core inflation remains high in much of the
world and financial vulnerabilities have re-emerged to create
new headwinds.
Turning to inflation prospects, our current growth forecast
leaves the output gap around zero, implying little positive or
negative pressures on inflation from expected growth.5
South Africa’s external financing needs, however, are
expected to rise. With a sharply lower export commodity
price index, stable oil prices, and somewhat weaker
growth in export volumes, the current account balance is
forecast to deteriorate to a deficit of 2.7% of GDP for the
next three years.6

APRIL 2023
Weaker commodity prices and higher state-owned
enterprise financing needs will put pressure on financing
conditions for rand-denominated bonds. Ten-year bond
yields currently trade at about 11.2%, despite the expected
moderation of inflation over the forecast period.
The rand has generally weakened over the past year. Recent
weeks have seen a further sharp depreciation and then some
reversal as sentiment shifted abruptly in the wake of policy
decisions in some major advanced economies. The implied
starting point for the rand forecast is R18.06 (2023Q2) to the
US dollar, compared with R17.32 at the time of the previous
meeting. Currency markets are expected to remain volatile.
While headline inflation eased in major economies (G3)
in December, price pressures remain clearly evident in
measures of core inflation, services and wages. In the G3
economies, consumer prices rose by 7.5% in 2022. Our
estimate for inflation in the G3 is higher at 4.2% in 2023 (up
from 4.0%) and 2.1% in 2024 (up from 1.8%) and unchanged
at 2.0% in 2025 (up from 1.9%).7
The rise in South Africa’s headline inflation rate has been
shaped primarily by fuel, electricity and food price inflation.
Fuel price inflation last year averaged 34.4% and is expected
to be -0.6% in 2023 (up from -2.7%). The electricity price
forecast is unchanged at 12.9% in 2023, 14.5% in 2024, and
10.9% in 2025.
Local food price inflation is revised up again despite global
food prices falling in dollar terms, in part due to the lagged
impact of the weaker exchange rate.8 Food price inflation is
now expected to be 9.9% in 2023 (up from 7.3%) and 4.5%
in 2024 (up from 4.4%).
Our forecast for core inflation is largely unchanged at 5.1%
in 2023 (previously 5.2%) and 4.8% and 4.5% in 2024 and
2025 respectively. Services price inflation in 2023 is forecast
to be 4.9%, lower than previously expected. Core goods
inflation, however, is forecast higher for this year at 5.9% (up
from 5.5%).9 The forecast for average salary growth and unit
labour costs is somewhat lower in 2023 and higher in 2024
and 2025.10

The G3 comprises the United States, the eurozone and Japan. The latest CPI inflation in the G3 sits at 6.0%, 8.5% and 3.3%.

Inflation in agricultural commodities decelerated to 0.1% in 2022Q4 (from 8.5% in 2022Q3) due to vegetable oils and cereals components. This year,
global food inflation is expected to be in deflation (after registering 14.2% in 2022) due to base effects and improving supply constraints.

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 4.9% in 2024 and 4.5% in 2025.
10 Average salaries were expected to be 6.9%, 5.5% and 4.7% for 2023, 2024 and 2025 respectively at the time of the January meeting. The March
figures are 6.4%, 6.2% and 5.1% respectively. Unit labour costs are forecast to rise by 6.1%, 6.0% and 4.4% respectively in 2023, 2024 and 2025.
Productivity per unit of labour is lower due to reduced expected output.
11 The BER Q4 2022 survey of inflation expectations indicated inflation at 6.1% in 2023 (up from 5.9% in Q3) and 5.6% for 2024 (up from 5.3% in Q3).
12 At the median, market analysts (Reuters Econometer) in March expect inflation to be higher at 5.8% (from 5.6% in February) in 2023, 4.7% in 2024
and 4.7% in 2025.
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 about 5.27% for the 5-year and 6.25% for the 10-year break-even, while 15-year break-even inflation sits at 6.91%.
With core goods and food higher in the near term, headline
inflation for 2023 is revised significantly higher to 6.0% (up
from 5.4%). Despite this, food and fuel inflation are expected
to ease, resulting in a headline forecast of 4.9% for 2024 and
4.5% in 2025.
Risks to the inflation outlook, however, are assessed to the
upside. Despite some easing of producer price and food
inflation, global price levels remain elevated. Russia’s war
in Ukraine and China’s economic rebound are expected
to keep the global oil market relatively tight. Electricity
prices and other administered prices continue to present
clear short- and medium-term risks. Domestic food price
inflation surprised higher again in February, and risks of
drier weather conditions have increased. Load-shedding
may additionally have broader price effects on the cost of
doing business and the cost of living, in particular as diesel
consumption increases. Given sticky petrol and higher
food price inflation, considerable risk still attaches to the
forecast for average salaries.
Interest rate levels in major economies are higher than
were projected in January, averaging 3.8% in 2023 (up
from 3.7%), 3.5% in 2024, and unchanged at 2.4% in 2025.
Tighter global financial conditions raise the risk profiles of
economies needing foreign capital, leading generally to
weaker currencies. South Africa’s risk premium is sharply
higher and will likely remain elevated over the forecast
period. Given load-shedding, upside inflation risks, and
larger external financing needs, further currency weakness
appears likely.
Inflation expectations increased strongly over the past year.
Average expectations of future inflation surveyed in the first
quarter of this year increased further to 6.3% for 2023 and
5.8% for 2024.11 Expectations for inflation in 2023 based on
market surveys are 5.8%.12 Long-term inflation expectations
derived from the five-year break-even rates in the bond
market sit at 5.27%.13
Headline inflation breached the upper end of the target range
in the second quarter of 2022, and is forecast to remain
above it until the third quarter of this year. Headline inflation
is only expected to sustainably revert to the midpoint of the
target range by the fourth quarter of 2024.

APRIL 2023
The forecast takes into account the policy rate trajectory
indicated by the Bank’s Quarterly Projection Model (QPM).
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.
Against this backdrop, the MPC decided to increase the
repurchase rate by 50 basis points to 7.75% per year, with
effect from 31 March 2023. Three members of the Committee
preferred the announced increase. Two members preferred
a 25 basis point increase.
The revised repurchase rate is now less accommodative
and is more consistent with the current view of risks to
inflation. The aim of policy is 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
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 Bank
will continue to closely monitor funding markets for stress.
14 The forecasted trajectory for the repurchase (repo) rate implies a rise in the inflation-adjusted repo rate from -2.0% in 2022 to 1.6% for 2023 and 2.0%
in 2024. The real repo level for 2025 is expected to be 2.4%. The real repo rates calculated here are based on the one-quarter-ahead inflation forecast
and refer to annual average rates.
Per cent
2017 2018 2019 2020 2021 2022 2023 2024 2025
Repurchase rate forecast (March 2023)

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

APRIL 2023
Summary of assumptions: Monetary Policy Committee
meeting on 30 March 2023*
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 62 and 63.

APRIL 2023
Summary of selected forecast results: Monetary Policy Committee meeting
on 30 March 2023
Selected forecast results (annual)
Actual
Forecast
Steady
state


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

Steady
state

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.

APRIL 2023
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.

APRIL 2023
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.

APRIL 2023
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%),

APRIL 2023
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.

APRIL 2023
Abbreviations
BER
Bureau for Economic Research
BoE
Bank of England
CPI
consumer price index
ECB
European Central Bank
EM
emerging market
EMDE
emerging market and developing economy
FAO
Food and Agriculture Organization
Fed
United States Federal Reserve
FX
foreign exchange
G3
Group of Three (United States, eurozone and Japan)
GDP
gross domestic product
GPM
Global Projection Model
GWh
gigawatt hours
Haver
Haver Analytics
IIF
Institute of International Finance
IMF
International Monetary Fund
JOLTS
Job Openings and Labor Turnover Survey
KZN
KwaZulu-Natal
MAPE
mean absolute percentage error
MPC
Monetary Policy Committee
MPIF
monetary policy implementation framework
MPR
Monetary Policy Review
MTBPS
Medium Term Budget Policy Statement
MTEF
Medium-Term Expenditure Framework
NAB
non-alcoholic beverages
NBER
National Bureau of Economic Research
NEER
nominal effective exchange rate
NTSDA
National Treasury Sterilisation Deposit Account
OCGT
open cycle gas turbine
OPEC
Organization of the Petroleum Exporting Countries
QPM
Quarterly Projection Model
repo (rate)
repurchase (rate)
rhs
right-hand scale
S&P
Standard & Poor’s
SARB
South African Reserve Bank
SIT
services, income and transfer (account)
Stats SA
Statistics South Africa
UK
United Kingdom
ULC
unit labour cost
UN
United Nations
US
United States
WEO
World Economic Outlook