PRESS STATEMENT
30 January 2025

STATEMENT OF THE MONETARY POLICY COMMITTEE

Issued by Lesetja Kganyago, Governor of the South African Reserve Bank
Good day
At our last meeting, we warned about a more challenging global environment. Some
of the risks we saw then have since materialised. In particular, the outlook for monetary
policy in the United States has changed. The space for rate cuts by the Federal
Reserve now looks limited, with core inflation still elevated1 and new inflation risks
emerging, such as rising tariffs on trade. It is even possible that US rates could go up
again, to stabilise inflation.
Growth outside of the United States is generally more subdued. The largest
economies in Europe have had weak economic performance. Germany has had two
years of contraction, and both France and the UK have slow growth. At the same time,
core inflation remains elevated, and rate-cut expectations have been pared back,
although less than in the United States. Meanwhile, China’s economy has been
decelerating, with very low inflation and a marked decline in interest rates.
In these circumstances, the US dollar has appreciated strongly, and according to some
measures has reached an all-time high.2

1 US core CPI inflation was 3.2% in December 2024
2 For instance, the Fed’s broad, nominal dollar index reached 127.8 index points in December 2024,
above the previous peak of 127.5 reached in October 2022.

Turning to South Africa, the economy contracted in the third quarter. However, this was
mostly due to an unusually large drop in agricultural production, which has limited
implications for how we interpret the economy’s underlying growth trend.
For the fourth quarter, we anticipate a rebound.3 This will be supported by more normal
agricultural production, as well as strong household spending, given tailwinds
including lower inflation and Two-Pot pension withdrawals. We think this expected
rebound in growth will close the output gap, leaving the economy to operate in line
with its potential from the current quarter onwards.4
We expect potential growth to trend higher over the next few years. This gets growth
to about 2% by 2027.
Looking at the composition of output, since the onset of Covid mining and
manufacturing have underperformed, with output still below pre-pandemic levels. It is
only due to growth in the tertiary sector that the economy is bigger now, than it was
five years ago.
Similarly, on the demand side, investment has been depressed since Covid, while
household and government spending have been more resilient.
As growth picks up, we expect some rebalancing, with a recovery in investment, as
well as improvements in the primary and secondary sectors. We will be monitoring the
data carefully to assess how closely the economy tracks these projections.
The risks to the growth forecast are assessed as balanced.
Moving to consumer prices, headline inflation averaged 4.4% last year, near the
middle of our target range. Inflation slowed to 3% in December, having started the year
above 5%. This was mainly due to favourable goods-price developments, including
food inflation reaching 15-year lows, as well as lower fuel costs.5
Because of these transitory factors, inflation is likely to remain in the bottom half of our
target range through the first half of this year. But headline inflation should revert to

3 Growth for 2024Q4 is projected at 1.3%, q/q and seasonally adjusted. 2025Q1 is 0.4%, also q/q sa.
4 The estimated output gap is 0% for 2025Q1, from -0.6% of potential GDP for 2024Q3. In the
forecast it averages -0.1% for 2025 and 2026, and 0% for 2027.
5 Fuel prices fell by 10.2% in December 2024, year-on-year. Food inflation was 1.7%, slightly up from
1.6% for November, which was the lowest rate of food inflation since 2010. Overall goods inflation
was 1.9%, compared with 4.2% for services.

around 4.5% thereafter, aided by core inflation which remains at or below the midpoint
over the forecast horizon.
While our exchange rate assumptions have shifted towards a weaker rand6, the effects
on the inflation forecast have been limited. This is mainly because other components
of inflation have come in below previous projections, lowering the starting point of the
forecast.
Inflation expectations have also now largely aligned with our midpoint objective,
according to the most recent survey.7
The risks to the inflation outlook are assessed to the upside.
In the near term, inflation appears well contained. However, the medium-term outlook
is more uncertain than usual, with material risks from the external environment.
Domestic factors such as administered prices are also problematic.
Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points,
with effect from 31 January 2025. Four members preferred this action, while two
supported an unchanged stance.
The committee ultimately agreed that it was possible to reduce the degree of policy
restrictiveness, making the stance somewhat more neutral. However, all members
were concerned about the uncertain global outlook.
The forecast sees rates drifting slightly lower over the next few years, stabilising near
7.25%. But this rate path from the Quarterly Projection Model remains a broad policy
guide. The MPC would like to emphasise that its decisions will be made on a meetingby-meeting basis, with no forward guidance and no pre-commitment to any specific
rate path. Such decisions will continue to be outlook dependent, responsive to data
developments, and sensitive to the balance of risks to the forecast.
Given the challenging global environment, the MPC spent some time during this
meeting reviewing a trade war scenario. This featured a universal increase of 10

6 The implied starting point for the forecast is R18.45 per USD, for 2025Q1, from R17.96 as of the
November 2024 forecast. The average for 2025 is now R18.62, from R18.09 previously.
7 This survey, conducted by the Bureau for Economic Research at Stellenbosch University, shows
average expectations for 2025 at 4.5%, as of the fourth quarter of 2024, from 4.8% previously.
Similarly, two-year ahead expectations declined from 4.8% to 4.6%. Expectations for the coming five
years were also at 4.6%, from 4.8% in the third-quarter survey.

percentage points in US tariffs, with retaliatory measures by other countries. The
scenario showed higher inflation and interest rates globally, as well as greater risk
aversion in financial markets. In response, our model projected the rand depreciating
to nearly R21 to the dollar, with domestic inflation reaching 5% and the policy rate half
a percentage point higher, at its peak, relative to the baseline forecasts.8
We also looked at a scenario of accelerated structural reforms, domestically. This
showed growth picking up gradually, getting to 3% in 2027.9 Importantly, this scenario
also showed lower inflation and lower interest rates in South Africa, demonstrating how
structural reforms can reduce the country risk premium and create more monetary
policy space.
Considering the difficulties of the external environment, it remains crucial to sustain
domestic reform momentum while protecting macroeconomic stability.
The MPC’s main contribution is to deliver low and stable inflation, with well-anchored
inflation expectations. The committee remains vigilant, and ready to recalibrate policy
as needed.
Additional measures that would improve economic conditions include reaching a
prudent public debt level, further repairing and strengthening network industries,
lowering administered price inflation, and keeping real wage growth in line with
productivity gains.
Lesetja Kganyago
GOVERNOR


8 In this scenario, the SA policy rate peaks about 50bps above the baseline path (ending 2025 at
7.87% instead of 7.39%) while inflation is around 50bps higher (4.4% in 2025 rather than 3.9%, and
5% in 2026 rather than 4.6%). Global short-term rates are 50bps higher, at their peak, relative to the
baseline.
9 The scenario assumed faster implementation of structural reforms than in the baseline forecast. In
the initial years of the scenario, inflation is 10-20bps lower than in the baseline, and the policy rate
moves about 25bps lower. Growth is higher by 0.1pp and 0.2pp in 2025 and 2026, respectively, and
accelerates over time, reaching 1.9% higher than the baseline in 2029, and 2.4% higher in 2032
(implying that growth more than doubles). This reflects higher investment, more exports and a
reduced risk premium.

The next statement of the Monetary Policy Committee will be released on 20 March
2025.
Contact person:
Thoraya Pandy
0824168416