MONETARY POLICY
REVIEW
April 2026


MONETARY POLICY
REVIEW
APRIL 2026


APRIL 2026
MONETARY POLICY REVIEW


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ISSN: 1609 -3194

Printed by the South African Reserve Bank

APRIL 2026
MONETARY POLICY REVIEW
Preface
The primary mandate of the South African Reserve Bank (SARB), as set out in section 224 of the Constitution,
is to achieve and maintain price stability in the interest of balanced and sustainable economic growth. In addition,
the SARB has a complementary m
andate 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
3%, with a tolerance band of plus or minus 1 percentage point . The 3% point target was adopted in 2025 and
replaced the 3–6% target band set in 2000.

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 2026
MONETARY POLICY REVIEW
Contents

Anchoring
in a storm
Executive summary and overview of the policy sta
.. 1
. 10


. 22

Boxes


... 9

Box 5 Under the hood of South Africa’s potential growth
. 20
Box 6 Offsetting component surprises kept 2025 growth forecast errors modest
.. 21
Box 7 Rand strength mostly explains 2025 inflation forecast errors

. 29

. 31
... 33

APRIL 2026
MONETARY POLICY REVIEW
Anchoring in
a storm

Executive summary and
overview of the policy stance

The e scalating conflict in the Middle East
and rising oil prices
have renewed upward pressure on global inflation, raising
expectations of disinflation reversal . Most m ajor central banks
have paused policy easing at recent meetings amid heightened
uncertainty and are expected to remain cautious, guided by
incoming data and the balance of risks. Domestically, inflation
remained contained during the review period (October 2025
–
March 2026 ) and eased to 3% (target) in February 2026. The
Monetary Policy Committee (MPC) reduced the policy rate by
25 basis points to 6.75% in November
2025 and has since held
rates unchanged
. Headline inflation is projected to rise
temporarily in the near term as the oil shock feeds through,
before returning to target from late 2027.
Turning to economic
activity, real output is forecast to expand by 1.4% this year, from
1.1% in 2025,
rising to about 2% over the medium term
.
However, the recent oil shock has raised the peril of stagflation.

Global economic developments
A brewing storm
The escalating conflict in the Middle East has pushed energy
prices sharply higher
and intensified supply -chain pressure.
Brent crude o il prices have risen by about 70% and European
natural gas prices by
about 75% since the war broke out . Oil
futures prices are also up significantly
, refl ecting uncertainty
around supply adequacy over the coming
months. The shock
has since broadened beyond energy, with f
ertiliser and
aluminium prices also ris ing marked ly amid constrained supply.
Heightened uncertainty also triggered large-scale sell -offs in
financial markets and drove volatility higher, ending the pre
-
conflict calm. Bond yields
rose and equities declined in
both
advanced and emerging economies , more sharply in the latter ,
as investors moved into safer assets
. The United States (US )
dollar has benefited from safe
-haven demand and higher oil
prices. South African assets also sold
-off, partially reversing
gains of the past six months.


The current outlook contrasts sharply with
the past year, where
global inflation declined to an average of 4.2% , from 5.8% in 2024.
However, disinflation was uneven across countries and regions

and largely stalled
during the review period
. Inflation remained
above target in most major advanced economies
due to sticky
services prices and, in the US,
tariff-induced rises in consumer
prices. Meanwhile, it moderated notably in emerging economies ,
supported by softer increases in energy and food prices and a
weaker US dollar ; however, this trend weakened into 2026 .

Global Inflation*
Source: IMF
Percentage change
* Dashed line indicates forecast

Jan
Feb
Mar
Apr
Brent crude oil futures
6-month
3-month
Source: Bloomberg
US$ per barrel

Headline inflation forecast*
Actual
Mar 2026
Sources: Stats SA and SARB
Percentage change
over four quarters
* Dashed line indicates forecast
Inflation target

MONETARY POLICY REVIEW
APRIL 2026
Against this backdrop, t
he ongoing conflict in the Middle East
has deteriorated the near-term inflation outlook and markedly
increased inflation risk
. T he conflict, t ogether with ongoing
trade tensions , may accelerate
the establishment of parallel
supply chains , potentially raising inflation further as countries
trade off efficiency for resilience .1
Amid shifting uncertainty, major central banks remained
cautious , generally keeping rates unchanged
at recent
meetings. Earlier in the review period, the Federal Reserve (Fed)
cut rates by 50 basis points and the Bank of England (BoE) by
25 basis points ; the European Central Bank (ECB)
kept rates
steady as inflation remained at target, while the Bank of Japan
(BoJ) normalised rates further, hiking by 25 basis points to a 30year high of 0.75 %. The modest pace of rate adjustments may
also reflect uncertainty about the level of the neutral interest
rate, which is estimated to have risen since the COVID
-19
pandemic. 2
C entral banks are generally anticipated to pause rate cuts this
year, reflecting still high uncertainty and the upward shift in
short-term inflation expectations.
Markets are now pricing in
rate increases in many jurisdictions – a marked reversal from
their expectations as of January
this year. Whether the present
shock proves temporary will depend on
the duration of the
conflict, the scale of damage to energy infrastructures
and the
extent of second
-round effects . Reports already indicate
significant infrastructure damage, implying a delayed return to
full production when the conflict ends. 3
The global economy was resilient
this past year , absorbing the
US tariff shock and broader geopolitical tensions with limited
loss of momentum.
Growth is estimated at 3.
4% in 2025,
unchanged from 2024.
4 This resilience reflected supportive
fiscal policies, less restrictive monetary conditions
and strong
investment in technology , mostly artificial intelligence (AI).
However, risks to global growth and inflation have risen
significantly. S harply higher energy -related commodity prices
and supply
-chain disruptions
have heightened
near- to
medium-term stagflation concerns .

1 See C Criscuolo and J Timmis, ‘The relationship between global value chains
and productivity’, International Productivity Monitor 32, 2017, pp 61 –83. See
also Organisation for Economic Co
-operation and Development (OECD),
OECD Supply Chain Resilience Review
, 2025 .

2 See I Schnabel, ‘No longer convenient? Safe asset abundance and r*’,
Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the
Bank of England’s 2025 BEAR Conference, London, 25
February 2025. See
also G Benigno, B Hofmann, G N Barrau and D S andri, ‘Quo vadis, r*? The
natural rate of interest after the pandemic’, BIS Quarterly Review , March 2024.

3 See Goldman Sachs Investment Research, Top of mind Iran conflict: How
long and how bad?, 2026.


4 International Monetary Fund (IMF), World Economic Outlook , April 2026 .

-1

UK
US
Eurozone
Japan
Sources: Central
banks
Per cent
Policy rates in selected advanced economies
-1

Trading -partner growth*
Rest of the countries (26.3)
Sub-Saharan Africa (22.5)
China (13.7)
Japan (5.8)
Eurozone (22.5)
US (9.4)
South Africa's trading partners, Sep 2025
South Africa's trading partners, Mar 2026
Source: SARB
Per cent
*Weights in brackets

Eurozone
Japan
UK
US
India
South Africa
Poland
China
Brazil
Advanced economies
Emerging markets
Market-implied policy rate expectations*
Jan 2026
Current
* One-year ahead
Source: Bloomberg
Cumulative change, percentage points

APRIL 2026
MONETARY POLICY REVIEW
The South African Reserve Bank (SARB)
anticipates tradingpartner growth of 2.9% this year, rising to 3.2% in
2027 and
2028.

Domestic economic outlook
Domestic headline inflation slowed to 3% in February 2026,
with broad -based moderation across core and non
-core
components. Headline inflation averaged 3.2% in 2025 – a 2 1year low , from 4.4% in 2024, extending the disinflation
trend
since the 2022 peak. Repeated undershooting of forecasts
over the past two years points to easing underlying inflation
pressures (see Box 7). However, conflict-induced headwinds
are expected to push
domestic inflation temporarily above
target in the near term.
Core inflation, which also averaged 3.2%
last year, and over the
review period,
benefited from subdued core goods price
increases, reflecting rand strength and muted global goods
inflation. Softer core goods inflation
helped offset upward
momentum in services inflation due to
elevated health
insurance and
rising rental

price increases.

Inflation
expectations eased markedly following the adoption of the 3%
inflation target, declining to 3.6% in the first quarter of this year

– a record low (Box 2) – while unit labour costs (ULC) remained
contained.
The near -term inflation outlook has deteriorated
significantly,
while uncertainty regarding the duration of the Middle
East
conflict, the extent of infrastructure damage and the magnitude
of second -round effects skews risks to the upside. Alternative
oil-price paths imply materially different inflation trajectories,
with non -linear pass -through likely. 5 For example, sustained
Brent crude oil prices above US$100 per barrel could raise
inflation sharply to an average of
4.6% this year, remaining
above target until the fourth quarter of 2028 (Box 1). However,
the temporary fuel levy relief of R3 per litre should moderate the
inflationary impact somewhat.
In the SARB’s baseline forecast
, which assumes
a less
protracted conflict , headline inflation peaks at 4% in the second
quarter of this year and average
s 3.7% for the year ; before
easing to target by late 2027. This near -term path is materially
higher than that projected in the January 2026 forecast. Core
inflation is also projected higher but remains within the tolerance
band. With energy -price uncertainty high and the rand slightly
depreciated , markets are now anticipating policy rate increases
this year, compared with two cuts expected
before the start of
the conflict.
Easing inflation and declining interest rates supported
consumer spending and thus
domestic economic activity
last
year. Gross domestic product (GDP)
expanded by 1.1%, more

5 Non-linear effects are present when an unusually large shock (here fuel price
increase) causes price- and wage -setting behaviours to deviate from normal or
expected patterns.


Fuel forecast evolution*
Actual
Nov 2025
Jan 2026
Mar 2026
Sources: Stats
SA and SARB
Percentage change over four quarters
* Dashed lines indicate forecasts

Two -years -ahead inflation expectations
-
all groups
Sources: BER and SARB
Per cent
Inflation target

Headline inflation forecast evolution*
Actual
Nov 2025
Jan 2026
Mar 2026
Sources: Stats SA and SARB
Percentage change
over four quarters
* Dashed lines indicate forecasts

MONETARY POLICY REVIEW
APRIL 2026
than double the growth rate
in 2024 . Spending was also
buoyed by equity -related wealth gains and two -pot retirement
withdrawals. Meanwhile, investment detracted from growth in
2025 , despite positive growth in the third and fourth quarters.
On a quarter-on-quarter basis, output expanded by 0.3% in the
third quarter of 2025 and by 0.4% in the fourth quarter.
This
momentum is expected to continue into the first quarter of 2026
and to gradually strengthen over the medium term.
On an annual basis, r eal output is forecast to expand by 1.4%
this year, rising to around 2% by 2028, broadly in line with
the
pace of potential GDP.6 Household consumption is expected to
underpin growth , support ed by investment as domestic
demand firms and structural
bottlenecks ease . Credible
commitments to lower inflation and stabilise public debt have
reduced macroeconomic risk and lowered
long-term borrowing
costs , lifting sentiment.
However, r isks to growth are skewed to the downside. A
sustained rise in fuel prices could significantly
erode household
real disposable income, while fuel shortages could disrupt
production and weaken activity.

Overview of the monetary policy
stance
The MPC reduced the policy rate by 25 basis points to 6.75%
at the November 2025 meeting, but kept it unchanged at the
January and March
2026 meetings. Since September
2024,
the policy rate has been lowered by a cumulative 150 basis
points; the policy stance remai ns moderately restrictive.
With the real neutral interest rate
broadly unchanged, the
Quarterly Projection Model (QPM) -implied real policy -rate gap
has narrowed sharply in the near
term as inflation is projected
markedly higher (albeit temporarily) in three to four quarters. The
real policy rate is projected to converge to its neutral level by
2028 as inflation returns to target and the output gap closes
–
rendering the policy stance neither restrictive nor expansionary .
The unchanged policy rate at the January
2026 meeting mostly
reflected caution amid rising geopolitical tensions as well as
uncertainty about the outlook for inflation and inflation
expectations. The QPM had suggested a cut in the first quarter
(which includes
the March meeting). The MPC’s risk
assessment and judgement around the QPM
baseline forecast
enable more robust policy decisions than reliance on the model
alone would allow.
By March ’s MPC meeting, the near-term inflation outlook had
deteriorated markedly. Uncertainty was heightened , particularly
around oil and commodity price spikes
, the duration of the
conflict and extent of supply -chain disruptions, along with the

6 Potential growth is estimated to rise from 1.4% in 2026 to 1.7% and 1.8% in
2027 and 2028 respectively .
-2
-1

Percentage change over four quarters
Sources: Stats SA
and SARB
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
.

Nominal policy rate
Source: SARB
Per cent

Nominal policy rate with forecasts*
Nominal policy rate
Nov 2025
Jan 2026
Mar 2026
Source: SARB
Per cent
* Dashed lines indicate forecasts

APRIL 2026
MONETARY POLICY REVIEW
scale of second -round effects . Weighing these dynamics
, the
MPC kept the policy rate unchanged while monitoring the
increasingly adverse environment.

Conclusion
Global disinflation, which had largely stalled prior to the start of
the conflict, is now at risk of reversing. The sharp rise in
energy
prices and supply -chain pressures presents policy challenges
similar to those of 2021 –22, although currently restrictive policy
settings should help. Markets are now pricing in rate increases
this year for economies where inflation risk is deemed
significant. Major central banks have
generally paused easing
cycles as they wait for more information.
The near -term domestic inflation outlook has shifted higher
,
although inflation is forecast to return to target by late 2027 .
The SARB remains committed to achieving the
3% inflation
target over the medium term and will continually evaluate policy
settings as new data is received .
The global environment has become
increasingly less
supportive, suggesting a stronger role for domestic
factors in
driving resilience and growth
. Credible policy commitments,
including the adoption of the 3% inflation target and ongoing
fiscal consolidation, have
driven long-term borrowing costs
down and strengthened the rand. More benefits would accrue
from additional reforms, such as
aligning admin istered price
increase s with headline inflation , expediting electricity and
logistics reforms as well as stabilising public debt.

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
Inflation target

MONETARY POLICY REVIEW
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Box 1 Middle East conflict scenarios
The conflict in the Middle East has disrupted global energy markets and
raised energy-commodity prices , particularly oil. As South Africa is a net
importer, higher fuel costs pose upside risk to inflation. The evolution of the
conflict remains highly uncertain, implying several possible price paths for
energy commodities . This box outlines two scenarios considered by the
Monetary Policy Committee (MPC) at the March 2026 meeting, which differ
in the severity and duratio n of the energy shock .
The intermediate scenario assumes a short conflict of about two months,
after which the Strait of Hormuz reopens, oil flows gradually
normalise and
prices ease. The risk premium is assumed to rise by 10% at its peak and
the rand to depreciate by about 5% at its peak, relative
to the first quarter
of 2026 .
The severe s
cenario assumes a conflict lasting more than a year,
significant damage to energy infrastructure across Gulf states as well as
a
prolonged closure of the Strait of Hormu z and continued disruption in the
Red Sea corridor. Accordingly, energy
-commodity prices are
materially
higher and more persistent. The risk premium is assumed to increase by
20% at its peak and the rand to depreciate by around 10%
at its peak,
relative to the first quarter of 2026 .
In the intermediate scenario , price pressures will rise relative to the baseline
but will be less persistent , with inflation converg ing to target by 2028
,
consistent with the S outh African Reserve Bank’s convergence horizon
when the 3% target
was announced . The Quarterly Projection Model
(QPM)-implied rate path indicates modest tightening .

In the severe scenario , inflation is expected to be sharply higher and
the
target will not be achieved within the forecast horizon
, reflecting a larger
and longer -lasting shock. 1 S econd -round effects are stronger and the risk
of de -anchored inflation expectations is higher, requiring a
more forceful
policy response to prevent inflation from becoming entrenched.
Monetary policy response to supply shocks


Monetary policy cannot prevent the direct impacts of higher energy prices
as these reflect in surveyed inflation immediately. Its role is to prevent
broader and persistent inflation pressures through second -round dynamics
in wages and inflation expectations. These risks
increase when shocks are
large or prolonged , as price - and wage -setting behaviours may deviate
materially from expected patterns. In the severe scenario, the QPM -implied
front-loading of rate increases
does not indicate a direct response of
monetary policy to the supply shock. Instead,
front-loaded rate increases
reflect the long and variable lags of monetary policy; action must be taken
early to limit second -round effects, as it will be too late once they appear in
inflation data.
Despite uncertainty around the conflict’s duration and the energy price
path, South Africa is in a stronger position than during
the 2022 energy
price shock . De-risking measures, including the 3% inflation target and
ongoing f iscal consolidation , have contributed to lower risk premiums and
a more resilient exchange rate , exerting some disinflationary impetus .

Inflation is at target as of February 2026 and inflation expectations are at
historical lows. A lower target and better
-anchored inflation expectations
provide a buffer, allowing monetary policy to accommodate typical
cost -push shoc ks with less risk of secondary inflationary pressures (Box 2).

1 Inflation is anticipated to return to target only in the fourth quarter of 2028.

2021 2022 2023 2024 2025 2026 2027 2028
Nominal US$ exchange rate*
Baseline
Intermediate scenario
Severe scenario
Source: SARB
Rand/US$
* Dashed lines indicate forecasts

2021 2022 2023 2024 2025 2026 2027 2028
Headline inflation*
Baseline
Intermediate scenario
Severe scenario
Source: SARB
Per cent
*Dashed lines indicate forecast

2021 2022 2023 2024 2025 2026 2027 2028
Inflation expectations*
Baseline
Intermediate scenario
Severe scenario
Source: SARB
Per cent
*Dashed lines indicate forecast

APRIL 2026
MONETARY POLICY REVIEW

Scenario results


Variable

Baseline
78.00
68.00
65.00
Brent crude oil* (US$)
Intermediate scenario
85.00
72.00
67.00
Severe scenario
97.00
118.00
103.33


Headline inflation (%)
Baseline
3.70
3.33
3.02
Intermediate scenario
4.05
3.58
3.01
Severe scenario
4.56
5.53
3.45


Nominal policy rate ( %, end of
period)
Baseline
6.47
6.05
5.93
Intermediate scenario
6.67
6.12
5.93
Severe scenario
8.17
7.13
6.19


* Scenario assumption
Source: SARB

APRIL 2026
MONETARY POLICY REVIEW
Box 2 Desirable attention
The management and anchoring of inflation expectations around the target
is a key intermediate objective in achieving the South African Reserve
Bank’s (SARB) price stability mandate. Greater attentiveness by agents to
macroeconomic conditions would acceler
ate the adjustment of inflation
expectations (and inflation) towards the 3%
target, thereby reducing the
real economic costs associated with the transition.
1, 2

A key question is the extent to which South African price setters (firms) are
attentive to inflation and monetary policy communications. Recent
episodes of elevated inflation,
concerted SARB communication and the
public discourse that preceded the reduction of the inflation target to 3%
are likely to have increased firms’ attentiveness.
To assess this more
systematically, the SARB and the Bureau for Economic Research (BER)
surveyed price setters on their knowledge of the SARB’s preferred inflation
target as of the fourth quarter of 2025. 3

Nearly half of surveyed firms (48%; Group
1) correctly identified the
preferred inflation target as 3%, while a further 38% (Group
2) reported a
value between 3% and 4.5%, with a cluster at 3.5%.
4 Firms in Group 1
primarily cited the Minister of Finance’s official announcement during the
November 2025
Medium-Term Budget Policy Statement
, whereas
Group 2 respondents referred to broader macroeconomic conditions.

Taken together, these results indicate that the majority of surveyed firms
believe (correctly) that the SARB’s preferred inflation rate has declined.

Consistent with this perception, the distributions of firms
’ inflation
expectations have progressively shifted towards 3%.


Among the firms reporting a preferred target below 4.5%
, those surveyed
in all four quarters of 2025 revised their inflation expectations downwards
in each successive round, with larger average revisions among firms
correctly identifying the 3%
target. This indicates that firms are not only
informed but are als o adjust ing their beliefs and, likely their behaviours.

1 See C Loewald, R Steinbach and J Rakgalakane, ‘Less risk and more
reward: Revising South Africa’s inflation target’, SARB Working Paper Series

No. WP/25/05, May 2025 .

2 O Pfauti, ‘The inflation attention threshold and inflation surges’, American
Economic Review , forthcoming.

3 The SARB included a one
-off question in the BER survey of firm inflation
expectations for the fourth quarter of 2025. Respondents were asked the
following: “In your opinion, at what level of inflation (percentage change) does
the South African Reserve Ban k prefer to keep inflation?” They were also
asked to provide a reason for their answer.

4 The bunching at 3.5% is somewhat surprising but may reflect attentiveness
by firms to headline inflation, which was around this level at the time of the
survey.

5 Respondents cited weak economic growth, unemployment and elevated
debt, among other factors.

6 Until July 2025 , the SARB’s preferred inflation target was 4.5%, with a target
range of 3 –6%.

Q1
Q2
Q3
Q4
Mean two -years ahead inflation expectations
for group 1 and 2*
Group 1
Group 2
Sources: BER and SARB
Per cent

*Dotted lines indicate i nflation target

<3.0

Firms' view of SARB's preferred target
Sources: BER and SARB
Count
Inflation rate (per cent)

≤3.0

≥7.1
Inflation rate (per cent)
2025Q1
2025Q2
2025Q3
2025Q4
Sources: BER and SARB
Percentage of respondents
Distribution of two -years -ahead business
inflation expectations

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MONETARY POLICY REVIEW

Box 3 Towards a self -stabili sing inflation regime
High- and low -inflation regimes have distinct characteristics.
1 This box
distinguishes South Africa’s inflation regimes and evaluates their
persistence and policy implications.

Over the past quarter century of inflation targeting in South Africa, inflation
has alternated between high - and low -inflation regimes , spending broadly
equal time in each. 2 On average, the regimes have exhibited a high degree
of persistence, requiring large shocks for inflation to transition from one to
the other. For instance, inflation shifted into high
-inflation regimes in the
aftermath of the 2008 global financial crisis, the 2011 –14 oil shock and the
post-COVID -19 global inflation surge. In each case, large policy rate
increases were required to bring inflation out of the ‘high’ regime.

Regime persistence implies that both high and low inflation tend to be self

reinforcing. South African evidence indicates that the low -inflation regime is
more stable, as exit probabilities are lowest for this regime. When the
economy is in a low -inflation regime, the probability of remaining in this state
is 0.88 and that of exiting and transitioning to high
inflation is 0.12.
However, when starting in a high
-inflation regime, the probability of
remaining is 0.79 and that of transitioning to low inflation is 0.21,
nearly
double that of the low -inflation regime.3

In a low -inflation regime, measured inflation mostly reflects relative price
movements and these tend to be weakly correlated across sectors and;
wages and prices are also loosely correlated.
4 This implies a muted
inflationary impetus in the economy. Intuitively, in a low
-inflation regime,
typical inflation shocks are less likely to persist and thus push inflation out
of this state . Only large or positively correlated shocks could destabilise
inflation.5 The implication is that monetary policy can look through most
typical shocks when in a low -inflation regime.

The self -stabilising properties of low
-inflation regimes are particularly
important in a shock
-prone environment, as they provide greater policy
flexibility. Accordingly, central banks should seek to avoid shifts into high
-
inflation regimes and should resp ond decisively when such risks increase.

For South Africa, achieving the 3% target should reduce macroeconomic
volatility, better anchor inflation expectations and subdue the common
component of inflation across sec tors.7, 8

1 C Borio, ‘The two -regime view of inflation’, Bank for International Settlements
(BIS) Working Papers No. 133, March 2023. See also C Borio and M Chavaz,
‘Moving targets? Inflation targeting frameworks 1990 –2025’, BIS Quarterly
Review , March 2025.

2 High-inflation regimes are realised when headline inflation exceeds a model
estimated, time-varying threshold value , with periods of headline inflation below
the thresholds classified as low -inflation regimes. See A Foresto, M Reid and
J Rakgalakane, ‘State dependence of the Phillips curve:
What does this mean
for monetary policy?’, SARB Working Paper
Series No. WP/25/06, June 2025.

3 Foresto et al. (2025). Ibid .

4 C. Borio , op cit.

5 Typical inflation shocks are defined as one standard deviation shocks.
See
Box 1 in the October 2025
MPR . Ibid.

6 C. Borio, ibid.

7 See C Loewald, R Steinbach and J Rakgalakane, ‘Less risk and more
reward: revising South Africa’s inflation target’, SARB Working Paper Series

No. WP/25/05, May 2025.

8 See L Kganyago, ‘From fragility to strength: The role of price stability’,
Speech
at the National School of Government , Pretoria, August 2025.

High - and low -inflation regimes in South Africa
Regime
Targeted
Inflation
Source: Foresto,
Reid and Rakgalakane (2025)
Per cent

APRIL 2026

MONETARY POLICY REVIEW
Global economy:
Uncertain
prospects
Geopolitical developments are
testing global resilience. While
the global economy recorded modest disinflation and steady
growth over the review period, the conflict has introduced
severe risks. Higher energy prices and supply -chain disruptions
have raised stagflation concerns . Together with trade policy
uncertainty and broader geopolitical tensions, these
developments may accelerate supply
-chain fragmentation,
constraining trade and growth , and increase production costs.
Major central banks have largely pa
used policy normalisation
pending further information to reduce uncertainty and support
risk assessment.
Global disinflation continued in 2025 with
average inflation
declining by 1.6 percentage points to 4.2%. However,
rising
energy costs and supply -chain disruptions have lifted the nearterm inflation outlook, with risks skewed to the upside . There is
also a risk that the energy -price shock
may trigger second -
round effects , whereby higher fuel costs feed into wages and
broader price -setting behaviour, generating more persistent
underlying inflation pressures .
Inflation projections have since been revised higher across most
major economies . In the US, core
personal consumption
expenditure (PCE ) inflation is now projected to reach 2.7% this
year, up from 2.4%
.7 Even before the war, US inflation was
forecast to return to 2% only by 2028. While the invalidation of
the International Emergency Economic Powers Act
tariffs and a
normalising labour market may ease price pressures, a
prolonged conflict could keep energy
and food
inflation
elevated, further delaying a return to target.
Eurozone inflation, which returned to target last year, faces
renewed upside
pressure from energy prices, with headline
inflation now seen averaging 2.6% this year, from 1.9%
previously. 8 In the U nited Kingdom (UK ), in addition to energy,
higher administrative costs and sticky services inflation will likely
keep inflation elevated. And, in Japan, inflation is forecast close
to target in 2026 , having remained above target since the
middle of 2022 .
Disinflation was more pronounced in emerging markets last
year, mainly because of higher weights for food and energy as
well as currency appreciation.
Lower Chinese export prices,
driven by overcapacity and weak domestic demand, supported
easing global goods inflation. However, China’s (and Asia
’s)
heavy reliance on Middle Eastern energy commodity supplies
makes it vulnerable to price
shocks and
potential supply
shortages, with
the risk of spillovers to
domestic producer
prices and ultimately export prices .

7 US Federal Reserve Board, ‘Summary of economic projections’, March 2026.


8 European Central Bank , Staff projections, March 2026.

UK
US
Japan
Eurozone
Headline inflation projections for
advanced economies*
Oct 2025 forecasts
Source: IMF
Percentage change
* Shaded bars indicate recent forecasts

Russia
Vietnam
Indonesia
Thailand
Chile
Philippines
Colombia
Brazil
Japan
South Africa
Malaysia
Mexico
Argentina
India
US
UK
Poland
Italy
Spain
Hungary
Germany
France
China import share
Sources: IM F and Our World in Data
Per cent of total merchandise imports

Advanced economies
Emerging markets excluding China
Sources: Haver
and SARB
Percentage change over 12 months
Headline inflation in advanced economies
and emerging markets

APRIL 2026
MONETARY POLICY REVIEW
Global resilience facing new
challenges9
Pre-war forecasts of global econom
ic activity had growth
steady at 3.
4% this year, supported by robust consumer
spending, AI
-related investment and lower interest rates.
However, the conflict in the Middle East
has d egraded the
outlook and could weaken it further if prolonged.
Among advanced economies, the US is
projected to grow by
2.3% this year , supported by
consumer spending
and AI -
related investment. Meanwhile, growth is projected to slow
in
most major economies , weighed down by higher energy costs
and uncertainty. Manufacturing competitiveness is expected to
weaken further in the eurozone, while fiscal con solidation adds
to drag in the UK. Growth is also projected to slow in Japan ,
despite fiscal support
.10 However, s ignificant uncertainty
is
attached to these projections.
Emerging economies have also seen their growth
outlook
downgraded relative to the January

projections.
Nevertheless, emerging Asia and sub -Saharan Africa (SSA ) will
continue to unde
rpin growth. China’s GDP is expected to
expand by 4. 4%, while growth in India is forecast to remain
above 6%. At 4.3%, SSA is projected to outpac e its 4.1% pre -
pandemic average, supported by strong growth in Nigeria and
a modest expansion in South Africa.
However, downside risks
to the emerging markets growth
outlook have risen. While
higher energy prices should boost GDP for oil exporters, it may
worsen growth and inflation for oil
importers such as South
Africa.
Loose fiscal stances
, which supported near-term growth, have
heightened debt-sustainability concerns given elevated interest
rates. Geopolitical tensions in the Middle East and
sharply
higher oil prices could prompt countries to increase spending
on defence and energy support,
further deteriorating the fiscal
outlook. Additional fiscal expansion
s could add to price
pressures and raise the risk of fiscal dominance.

Monetary policy: More caution
Major central banks cut policy rates
moderately during the
review period as inflation eased or labour markets
softened
and, until recently, were expected to deliver modest further cuts
this year. However, given new risks, they have largely pause d
rate normalisation to assess incoming data. Prospective cuts in
major emerging markets have mostly been priced out . Markets
have begun pricing in
rate hikes this year for several central
banks, including the ECB, BoE and SARB. Overall, interest
rates are likely to remain elevated for longer.

9 The growth figures reported in this section are from the IMF World Economic
Outlook, April 2026.

10 Eurozone growth is projected at 1.1% this year, from 1.4% in 2025
; UK at
0.8% (from 1.3% ); and Japan at 0.7% (from 1.2%).


US
UK
Eurozone
Japan
Real GDP growth projections for
advanced economies*
2010-19 average
Source: IMF
Percentage change
* Shaded bars indicate forecasts

Easing
Tightening
* Sample includes 30 central banks
Source: Central banks
Number
Global central bank nominal rate changes*


Brazil
Poland
US*
Hungary
Italy
Colombia
India*
UK
South Africa
France
Mexico
Spain
Russia
Canada
Germany*
Fiscal balance
* 2024 balances
Sources: Central banks and statistical ofiices
Percentage of GDP

APRIL 2026

MONETARY POLICY REVIEW
Global fi nancial market s : War
drums, market nerves

Financial market volatility spiked in March 2026 following the
outbreak of the conflict in the Middle East , upending the relative
calm that had prevailed since late
2025. Prior to the war,

markets were shaped
mainly by geopolitical uncertainties,
shifting expectations around the global monetary policy cycle
and fiscal concerns in major economies. Emerging market
assets broadly performed
well, supported by global risk
-on
sentiment, a weaker US dollar and
domestic fundamentals.
However, the outlook has changed
abruptly, with risk -off and
volatility returning.
South African
bonds and the rand
outperformed, buoyed by improving fundamentals.
Nonetheless, r ecent adverse geopolitical events have reversed
some of the gains and may drive inflation higher. Financial
market predictions of the SARB policy rate
, implied from
forward rate agreements
, now indicate a
marked departure
from earlier forecasts that projected rate cuts this year.
Global financial markets were
calm for much of the review
period. The Fed’s pivot toward rate cuts in the second half of
2025 and a more stable tariff environment supported a decline
in market volatility into year
-end. However, m arket stability
ended abruptly after the US and Israel attacked Iran, which
triggered a sharp rise in oil prices in March
2026 , reigniting
inflation concerns and prompting a repricing of expected policy
rate paths.
Bond markets have borne the brunt of this adjustment, with the
impact most pronounced at the front end of the curve. The rise
in short-term yields in the UK and eurozone reflects heightened
sensitivity to energy-driven inflation and its implications for nearterm policy. However, even before the recent shock, longer
dated advanced economy bond yields had been rising. In
Germany, the lift mostly reflected
expectations of increased
sovereign borrowing following a loosening of fiscal constraints.
In Japan, hi
gher yields reflect expected fiscal stimulus (of
around 3% of GDP) as well as the
BoJ ’s continued policy
normalisation, allowing long er-term yields to better align with
those of peers.
Emerging market bond yields have
also risen, reversing some
of the earlier compression as global inflation risks resurfaced
and rates repriced. For much of the review period,
macroeconomic factors such as lower inflation, resilient growth
and improved policy credibility, along with a weaker US
dollar,
underpinned demand . Stronger fundamentals partly explain the
less pronounced sell -off compared with advanced economies.

The volatility seen in bond markets was also reflected in
equity
indices , which saw marked corrections in
March. Apart from
risk-off motivation, equity sell-offs may also reflect pre-existing
vulnerabilities due to
concentration of gains and
elevated
valuations in parts of the market
, which left them at risk from
adverse shocks. For much of the review period, US
equities
were supported by solid corporate earnings and
strong

Oct
Jan
Apr
Jul
Oct
Jan
Apr
Basis points
5-year versus 30 -year bond yields
UK
US
Germany
Sources: Bloomberg and SARB

Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
10-year government bond yields
Brazil
Indonesia
India
South Africa
Poland
Mexico
Source: Bloomberg
Per cent

Index (both scales)
VIX
MOVE (right-hand scale)
Source: Bloomberg
Volatility measures

MONETARY POLICY REVIEW
APRIL 2026
investment in technology and other productivity
-enhancing
sectors. Similarly, n on-US markets also performed well over
this period, with the MSCI World
excluding -US Index and
emerging market benchmarks delivering solid returns in dollar
terms, as they benefited from increased risk appetite .
The shift from risk -on to risk -off has benefited the US dollar,
which has recovered some losses after reaching a multi
-year
low in January 2026. The dollar profited from safe-haven flows
and expectations of higher
-for-longer US interest rates.
For
much of the review period, a weaker dollar
, reflecting portfolio
reallocation away from dollar
-denominated assets
and a
resilient global environment
supported emerging market
currencies , dampen ing inflation.
In commodity markets,
the gold price has retreated from the
record high
of US$5 400 per troy ounce
reached in
late
January, weighed by profit
-taking and higher advanced
-
economy bond yields.
The gold price had surged on stronger
central bank demand and increased investor hedging against
inflation and financial market volatility.
Despite the recent
retreat, gold has gained about 15% over the past six months.


South African financial market
developments
Domestic markets also experienced significant volatility during
the review period , with large sell -offs since March. Prior to the
conflict, domestic markets outperformed, benefiting from a
generally supportive global environment since the previous
Monetary Policy Review (MPR) , reinforced by favourable
domestic developments. The country’s removal from the
Financial Action Task Force greylist in October
2025 , the
adoption of a lower inflation target and a credible fiscal
consolidation path marked meaningful de-risking milestone s.
These achievements resulted in Standard & Poor’s (S&P ) Global
upgrading South Africa’s
credit rating – marking the first
upgrade from a major agency in nearly two decades.

Improved macroeconomic fundamentals
supported demand
for domestic bonds , resulting in a flattening and downward shift
of the yield curve . Policy credibility has helped anchor inflation
expectations, reinforcing investor confidence in the fixed
-
income outlook. Real yields above 4% also provided a
compelling backdrop for both domestic and foreign investors.
That said, the recent escalation in the Middle
East conflict has
weighed on risk sentiment, resulting in some bond flow
reversals by non
-resident investor s. The South African
Government Bond yield curve has shifted higher but so far
remains well below its March 2025 level.
The JSE All Share Index
, which reached a record high in
February 2026 , has since reversed its gains for the year
. The
index was dragged down by a sharp correction in mining

related stocks , reflecting the marked declines in gold and other

9 10 11 12 13 14 15 16 18 22 27
Years to maturity
South African bond yield curve
Mar 2025
Jan 2026
Current
Sources: Bloomberg and SARB
Per cent


Index (both scales)
Global equity performance
MSCI World excluding US
MSCI EM Index (right-hand scale)
Source: Bloomberg


US$ per troy ounce
Index
Gold price and dollar index
DXY
Gold (right-hand scale)
Source: Bloomberg

APRIL 2026

MONETARY POLICY REVIEW
precious metals prices
. Resource -linked counters , along with
banking, had supported the rally, while domestically oriented
counters lagged , mirroring the still modest ec onomic activity .
The rand also had a dichotomous
performance, depreciating
sharply in recent weeks after being one of the top -performing
emerging market currencies in 2025
. In the past year , the rand
gained over 13% against the US dollar and strengthen
ed to
below R16.00 per dollar in late January 2026. Notably, rand
strength was broad
-based as the currency
also appreciated
against other major currencies. However, these gains have
since partially unwound
amid deteriorating terms of trade
,
leaving the currency around 4% stron ger relative to its October
2025 levels. Recent moves illustrate that large swings in global
risk sentiment continue to influence short
-term exchange rate
dynamics , but also that
improved domestic fundamentals

mediate these influences.
Amid heightened risks to inflation, market
-implied interest rate
expectations now suggest scope for about
two 25 basis point
interest rate hikes this year. This contrasts with two cuts in 2026
that were anticipa ted just before the conflict began.


-20
-10

Oct
Nov
Dec
Jan
Feb
Mar
Apr
Cumulative per cent returns
JSE indices
Mining
Banking
Industrial
Retail
All Share
Source: Bloomberg

-8
-4

JPY
GBP
EUR
CAD
CHF
TRY
INR
KRW
PLN
ARS
CNY
ZAR
MXN
HUF
BRL
Six months to date
Year to date
Source: Bloomberg
Selected FX performance versus US dollar
Percentage change

MONETARY POLICY REVIEW
APRIL 2026


Box 4 From the repo rate to the SARB policy rate

The South African Reserve Bank (SARB) has renamed its main monetary
policy tool, dropping the term repurchase ‘repo’ rate and replacing it with
‘policy’ rate (or the ‘SARB policy ’ rate). The change follows the 2022 reform
of the monetary policy implementation framework (MPIF). The policy rate
,
set by the Monetary Policy Committee (MPC)
, remains the primary
instrument used to achieve the inflation target. This change in terminology
does not affect the level
of the rate, its determination or entail any new
operational arrangements.

The term ‘repo ’ rate originated in the SARB’s previous framework for
monetary policy implementation. This was a classical cash reserve or
shortage system, where the policy rate was attached to a lending facility
(specifically, a weekly auction offering liquidity through ‘repo’ transactions,
where banks gave the SARB collateral as security for loans).


Since the introduction of the new MPIF in 2022
, repo operations have
declined sharply. Weekly repo uptake fell from about R30 billion in
2021 −2022 to an average of just over R2
billion in 2022 −23 and this has
fallen further recently: there has been zero borrowing f rom this facility since
late October 2025. Continued use of the t
erm ‘repo ’ rate would therefore
overemphasise an operational mechanism that is no longer a significant
component of monetary policy implementation. Instead, under the new
framework, policy transmits mainly through a deposit facility, which sees
large volumes every n ight (around R200 billion recently) .

The revised terminology also distinguishes the SARB policy rate from
market-determined repo rates, which vary with liquidity conditions,
collateral dynamics and other market factors. By contrast, the policy r
ate is
an administered rate set by the MPC to achieve the inflation target.


In short, the change aligns the name of the policy instrument with its
purpose and the current operating framework.


-100 000
-50 000


R million
Repo take -up and liquidity position
Repo take-up
Liquidity position
New
MPIF
Source: SARB

APRIL 2026

MONETARY POLICY REVIEW
Real economy: A fragile
recovery
Domestic output expanded by 1.1% in 2025, from 0.5% in the
previous year . Household consumption
underpinned output
growth, as consumers benefited from a favourable
inflation
environment and declining borrowing costs. By
contrast, fixed
investment detracted for a second successive year
, although it
contributed positively to growth in the third and fourth quarters .
The growth momentum seen in recent quarters is expected to
carry to the first quarter of
2026 . Looking ahead,
growth is
expected to average 1.4% this year, rising to 1.9%
in 2027 and
2028 . The se growth projections are conditional on continued
implementation of structural reforms and a quick resolution of
the conflict in the Middle East .

Recent economic developments
The domestic economy expanded by
1.1% in 2025 , a notable
improvement from the 0.5% outturn in the previous year.11 GDP
has now recorded five consecutive quarters of expansion
, the
longest such streak since
2018 , indicating strengthening
momentum. Nonetheless, growth remained modest and well
below long -term averages , underscoring the
enduring drag
from supply -side bottlenecks.

From the production side, output expansion was driven by the
tertiary sector, particularly trade and finance , where activity was
buoyed by low inflation and reduced borrowing costs
.13 The
primary sector recorded stronger activity in the second half of
2025, on an annual basis, although quarterly performance was
volatile. Agricultural output benefited from favourable weather
conditions , while mining was supported by higher commodity
prices and improvements in freight rail performance . By
contrast, the secondary sector
again detracted from growth,
reflecting persistent weakness in manufacturing.
With activity levels improving, employment also expanded,
albeit modestly, driven by gains in the formal segment.

However, broader labour
-market conditions continue to be

subdued . Since the COVID
-19 pandemic , the labour
-
absorption rate has
stayed
below 42%,
while the
unemployment rate remains
high at 31.4% despite some
moderation.15 This reflects persistent challenges such as skills

11 On a quarter -on-quarter basis, the economy increased by 0.3% in the third
quarter and by 0.4% in the fourth quarter.

12 See A Khoza, K Morema, M Mofokeng and M Tshenkeng, ‘Will GDP firmly lift
from supply -side’, SARB Economic Note No. EN/2024/22 , December 2024.

13 For detailed sectoral performance see SARB,
Quarterly Bulletin, March 2026 .

14 See Statistics South Africa, ‘Quarterly Labour Force Survey , Quarter 4:
2025 ’,17 February 2026 .

15 The average labour absorption rate for G20 emerging
markets is
approximately 60%. See ‘OECD Economic Surveys: South Africa 2025’,
Volume 2025/14 , June 2025.


Real GDP growth
Annual growth
Percentage change over
one quarter
Source: Stats SA

2017 2018 2019 2020 2021 2022 2023 2024 2025
Labour market indicators
Participation rate
Absorption rate
Unemployment rate
Source: Stats SA
Quarterly Labour Force Survey
Per cent

1H23
2H23
1H24
2H24
1H25
2H25
Contributions to real GDP
Primary sector
Secondary sector
Tertiary sector
Taxes less subsidies
GDP*
Source: Stats SA
Percentage points
*Percentage change over one year

MONETARY POLICY REVIEW
APRIL 2026
mismatches and elevated job search costs and culminates in
sharply higher structural unemployment. 16 Meanwhile, real
compensation of employees expanded at a muted rate of just
0.4% over the past year , well below its long -term average .
Despite persistent labour-market challenges , the demand side
of the economy was
buoyant, underpinned by robust
household consumption
. Household spending increased
by
3.9% in the final six months of 2025
, compared with the same
period a year earlier. The strong growth was supported by low
inflation and declining borrowing costs that reduced debt
service costs and boosted real disposable income.
Spending
was also bolstered by gains in asset prices
and the two -pot
retirement withdrawals.
By contrast, investment detracted from growth in 2025,
although the contraction was less pronounced compared with
the year before. However
, investment has gained some
momentum on a quarter -on-quarter basis , having expanded in
both the third and fourth quarters of 2025. Looking under the
hood reveals that investment was mainly directed to information
technology assets rather than physical assets, indicating that
firms and the public sector have
prioritised efficiency
improvements over capacity expansions .
High frequency data suggests GDP growth
momentum will be
sustain ed in the near term. The SARB projects growth of 0.3%
in the first quarter of this year , in line with the Reuters median
forecast.

Growth outlook
The domestic economy is projected to continue to expand over
the forecast period, growing by 1.4% this year and rising to
about 2% by 2028, underpinned by household consumption.
Government spending and net exports are also expected to

support growth, albeit modestly. The productive capacity of the
economy is projected to increase at roughly the same pace as
real GDP, resulting in an output gap that is practically closed .
However, n ear-term growth risks are skewed to the
downside
amid sharply higher energy costs .
Household consumption is projected to remain resilient
under
the SARB’s baseline
forecast, which assumes a short
-lived
conflict. While inflation is forecast to average higher at 3.7% this
year, compared with 3.3% in the January
2026 forecast, it is
anticipated to decline to target from
end-2027, implying
minimal real income erosion. The QPM -implied policy rate path
indicates a decline in borrowing costs over the medium term ,
which should further ease debt -servicing costs
as well as

support credit access an
d affordability. Consumption should

16 See C Loewald, K Makrelov and A Wörgötter, ‘Addressing low labour
utilisation in South Africa’, SARB Working Paper
Series No. WP/21/09 ,
June 2021.


Contributions to real GDP growth
Net exports
Residual
Change in inventories
Gross fixed capital formation
Government consumption
Household consumption
GDP*
Sources: Stats SA and SARB
Percentage points
* Percentage change
Forecast
-6
-4
-2

Gross fixed capital formation by sector
General government
Public corporations
Private sector
Total*
Source: Stats
SA
Percentage points
* Percentage change
over one quarter


Real household spending*
Sources: Stats SA and SARB
Percentage change
* Dashed line indicates forecast

APRIL 2026

MONETARY POLICY REVIEW
also benefit from expected employment growth and increase in
household net wealth .
Following two successive years of negative growth, investment
spending is projected to rebound, increasing by
2.2% this year
and broadly maintaining this pace through to
2028. Investment
will be supported by private sector capital spending as reforms
in the energy and logistic s sectors , along with the improved
macroeconomic
fundamentals ,
reduce
bottlenecks and
inefficiencies.17,18 Government’s announced R1.07 trillion in
infrastructure spending over the medium
-term expenditure
framework (MTEF) should add further impetus
; however,
chronic capital under-spending remains a risk .19
The growth outlook is subject to
significant risks. A further
escalation or prolongation of the Middle East conflict could raise
domestic inflation sharply and squeeze household incomes ,
while high fuel costs or shortages could
disrupt production.

Macro balances
The current account and its drivers
Improved terms of trade helped narrow the current account
deficit in 2025 compared with the projection in the previous
MPR as well as the
2024 outturn.20 This improvement was
underpinned by a strong trade surplus and a modest reduction
in the services, income and transfer deficit. Export growth was
supported by higher net gold exports and elevated precious
commodity export prices more generally; while lower
oil prices
reduced imports. Looking ahead, the current account deficit is
forecast to remain broadly unchanged this year, widening to
1.7% by 2028, reflecting increased domestic demand (imports).
However, renewed uncertainty
, the decline in precious
commodity export prices and higher oil prices stemming from
the Middle East conflict present downside risks.


Fiscal balances
South Africa’s fiscal position improve
d further in the 2025/26
fiscal year, with yet another primary surplus expected ; while the
debt-to-GDP ratio is anticipated to have peak ed this past fiscal

17 New regulatory reforms should speed up embedded -generation project
delivery. See Department of Minerals , Resources and Energy, ‘Grid capacity
allocation rules’, General Notice 6982 of 2025,
Government Gazette No.
53914 , 24 December 2025.

18 See Traxtion, ‘Traxtion confirms R3.4bn rolling stock investment to unlock rail
capacity and jobs’ , Media release, 4 December 2025.

19 See National Treasury, 2026 Budget Review: Public
-S ector Infrastructure
and Public-Private Partnerships Update, 2026.

20 The current account deficit averaged 0.5% of GDP in 2025. The October
2025 MPR projected a 1% deficit , while the 2024 outcome was 0.7%.

Total
In progress
Connected
Total
In progress
Issued
Connection phase
Budget quotation
phase
Pipeline of private sector energy projects
Apr 2023
Apr 2024
Nov 2025
Source: National Transmission Company South Africa
Gigawatts

-6
-4
-2

Current account balance
Services, income and transfers balance
Trade balance
Current account balance
Source: SARB
Percentage of GDP
Forecast

MONETARY POLICY REVIEW
APRIL 2026
year.21 These positive developments have
lifted confidence, as
discussed in the global financial markets chapter .
The fiscal trajectory is projected to improve further over the
MTEF, despite the withdrawal of the proposed R20
billion in tax
measures. The associated revenue shortfall is expected to be
offset by improvements in several tax bases and
lower non -
interest expenditure. Consequently, the primary surplus is
projected to increase from 0.9% of GDP in the
2025/26
financial year to 1.9% by 2027/28
, while the debt ratio
moderates to 77% by 2027/28 .
However, t he fiscal outlook faces material upside risks. The
temporary fuel levy relief of R3 per litre , weaker-than-expected
growth and potential
state-owned enterprise support may
reduce revenu e and increase expenditure .

Conclusion
Domestic growth is expected to
gradually strengthen, rising to
1.9% by 2028 . However, it remains below its steady -state level
of 2.5%
and well below the 4% average for emerging
economies, highlighting persistent structural challenges . Risks
to growth are skewed to the do wnside given the conflict in the
Middle East and sharply higher fuel prices .

21 The debt ratio is expected to have peaked at 78.9%, compared with the
projected 77.9% in the 2025 Medium-Term Budget Policy Statement and
77.4% in the 2025 Budget.

Primary balance*
Actual
2025 Budget
2026 Budget
Source: National Treasury
Percentage of GDP
*Dashed lines indicate forecasts

APRIL 2026

MONETARY POLICY REVIEW
Box 5 Under the hood of South Africa’s potential growth


The South African Reserve Bank (SARB)
uses a semi‐structural multivariate
filter to estimate potential growth – the maximum sustainable output above
which further expansions become inflationary .1 To explain the dynamics of
potential growth and the sources of shifts in this component , a Cobb -
Douglas produ ction function is estimated .2 The two
models produce
broadly similar profiles.

South Africa’s potential growth
has been on a declining trend
since the
global financial crisis. A decomposition into its constituent components,
namely capital, labour and total factor productivity
, indicates that capital
and labour supported growth in the pre-pandemic period, but their impact
gradually diminished over time . Total factor productivity, which measures
the efficiency with which firms combine labour and capital in production,
generally detracted from potential growth.

Labour’s con tribution to potential growth has
since normalised to pre -
pandemic levels , after pandemic -related volatility. Its longer -term decline
aligns with a sustained rise in
structural unemployment since the
global
financial crisis , underscoring a binding constraint on potential growth
.

C apital stock , once a strong driver of potential growth, has contributed only
modest ly since the pandemic
, mirroring weak investment growth.
3, 4
Investment has fallen to around 13% of gross domestic product
in 2025 ,
from nearly 20% in 2008. This sustained decline reflects policy uncertainty,
underperformance in critical
infrastructure and elevated long-term
borrowing costs. 5

Total factor productivity has also been volatile but has dragged on growth
overall. This persistent weakness points to
structural frictions, particularly
excessive regulatory burden and infrastructure inadequacies driven by the
erosion of state capacity
, that constrain firms’ ability to optimise
production.6 While productivity improved over the past year, likely reflecting
eased electricity and logistics constraints, a sustained rebound will require
decisive progress on these structural impediments
.

In short, pote ntial growth was mostly dragged by total factor productivity ,
suggesting constraints
that impede
both allocative and productive
efficiency. These constraints likely also explain the l
ow labour absorption
rate and subdued capital formation . Reforms that strengthen market
functioning and reduce uncertainty as well as the cost of doing business
would raise potential output. Operation Vulindlela reforms and measures
that bolster macroeconomic stability should therefore remain top priorities.

1 The methodology adjusts for temporary supply
‐side shocks, such as strikes or
droughts, to reduce the risk of m isclassifying these as demand
‐driven fluctuations in
output. See B Botha, F Ruch and R Steinbach, ‘Short ‐lived supply shocks to
potential growth’, SARB Working Paper
Series No. WP/18/02 , 2018 .

2 See A Khoza, T Mofokeng, K Morema, M Tshenkeng and D Lekgeu,
‘South Africa’s
potential GDP growth: Trends and drivers,
SARB Economic Note
, forthcoming.

3 Capital stock represents the accumulation of all existing fixed assets in the
economy . See P Alexander et. al., ‘Assessing global potential output growth’,
Bank
of Canada Staff Analytical Note , 2017.

4 See Krutham. 2025.
SA’s investment malaise: ‘A structural erosion of capital
formation?’, 2025.

5 See T Janse van Rensburg, A van Niekerk and R Ehlers, ‘What is holding back
investment in South Africa?’, SARB Economic Note
No. EN/2025/13, 2025.


6 See R Hausmann et. al., ‘Growth through inclusion in South Africa’,
CID Faculty
Working Pape r No.434, November 2023.
-5
-3
-1

Potential growth estimates
SARB
Production function
Source: SARB
Percentage change


Potential GDP
Labour
Capital
Total factor productivity
Potential*
Sources: Stats SA and
SARB
Percentage points
*Percentage change

MONETARY POLICY REVIEW
APRIL 2026

Box 6 Offsetting component surprises kept 2025 growth forecast errors modest


The South African Reserve Bank (SARB) regularly evaluates its forecast performance to ensure models are performing and expert
judgement adds
value to the forecasting process.

The SARB’s growth forecast errors for 2025 were modest, with the absolute mean error of just 0.25
percentage points across all Monetary Policy
Committee (MPC) forecast vintages, compared with 0.44
percentage points for the Reuters median .1

Although the overall forecast errors were small, they masked large but offsetting component
-level surprises. Household consumption was stronger
than projected, supported by faster -than-expected disinflation, the introduction of the two -pot retirement withdrawals in late 2024 and easier financial
conditions. Inventory accumulation was also underestimated, reflecting firmer
-than-anticipated demand.

Meanwhile, net exports and private investment were overestimated. Net exports underperformed, likely reflectin
g rand strength and slower -thanexpected improvements in competitiveness, particularly in logistics. Private investment also fell short, as reforms
, especially in electricity and logistics
had not yet translated into higher
capital spending . While unexpected, this outcome is consistent with the view that reforms affect investment and
growth with long and variable lags, as project pipelines, regulatory processes and confidence effects adjust gradually rather than immediately
.

The finding of modest headline growth forecast errors alongside large and offsetting component
-level errors highlights the need to assess forecast
performance beyond aggregate outcomes.


1 The 2025 gross domestic product growth root mean square error (RMSE) for the SARB was 0.32 and
0.50 for the Reuters median. This is relatively small
compared to the SARB’s 2023 and 2024 RMSEs of 0.78 and 1.14 respectively.


-3
-2
-1

Jan
Mar May
Jul
Sep
Nov
Jan
Mar May
Jul
Sep
Nov
Jan
Mar May
Jul
Sep
Nov
Jan
MPC dates
Contributions to the 2025 GDP forecast errors (forecast minus actual)
Net exports of goods and services
Change in inventories and residual
Private business enterprises GFCF
General government and Public corporations GFCF
Final consumption expenditure by general government
Final consumption expenditure by households
GDP (SARB)
GDP (Reuters median)
Overestimated
Underestimated
Sources: Reuters, Stats SA and SARB
Percentage points

APRIL 2026

MONETARY POLICY REVIEW
Price developments:
Tested by
shocks
Headline inflation eased to 3% in February
2026, aligning with
the new inflation target. Inflation remained contained over the
past year , as it benefited from fuel deflation and modest core
price increases
. A stronger rand,
moderating inflation
expectations and muted wage growth
kept core pressures
subdued . However, the near-term inflation outlook has since
shifted higher, reflecting sharp increases in fuel prices and rand
depreciation . The SARB
projects headline inflation to average
3.7% this year , from 3.2% in 2025, returning to target from late
2027 . Risks are skewed to the upside.

Oil prices and fuel inflation
Oil supply has tightened acutely since
the onset of the Middle
East conflict on 28 February 2026 . Uncertainty and disruption
to oil trade flows have push ed the oil price past US$100 per
barrel. Compared to recent shocks , the latest oil price rises are
significant. The diesel (petrol) price increased by R7. 37 (R3.06 )
per litre in April 2026, the largest on e-off increase for diesel
since 2000 . The increases would have been significantly higher
were it not for the temporary fuel levy reduction of R3 per litre.
The Brent crude oil price was mostly stable
around US$65 per
barrel in the first five months of the review period.
Modest oil
prices , plus rand strength , resulted in subdued domestic fuel
price pressures over the period.
Despite
elevated
uncertainty, m
edium-term oil market
fundamentals still point to a return to market oversupply, which
would put downward pressure on prices in the outer years of
the forecast

horizon.22
However, damage to energy
infrastructure in the Gulf region and disruptions to shipping will
likely constrain near - to medium -term supply. The SARB
has
accordingly raised its Brent crude oil price
assumption to
US$78 per barrel in 2026,
up from US$ 70 per barrel in the
October 2025
MPR , declining to US$65
per barrel by 2028
.
C onsiderable uncertainty surrounds this outlook (Box 1).

Administered price inflation
Administered price inflation eased to 3.2% this past year, from
5.2% in 2024 , mainly reflecting fuel deflation. However, t his is
expected to reverse in the near term as
the basic fuel price
increases due to higher Brent crude oil prices and widening
internationally determined refinery margins (especially for
diesel). Upside pressure also emanates from rising freight and
insurance costs a s well as a weaker rand. Refinery margins are
generally persistent , presenting the risk that they remain
elevated even when Brent crude oil prices normalise.

22 See US Energy Information Administration,
Short -Term Energy Outlook ,
April 2026.

Jan
Apr
Jul
Oct
Jan
Apr
Headline and core inflation
Headline inflation
Core inflation
Source: Stats SA
Percentage change over 12 months

Inflation target

Oil price forecast evolution*
Actual
Jul 2025
Sep 2025
Nov 2025
Jan 2026
Mar 2026
Source: SARB
US$ per barrel
* Dashed lines indicate forecasts


Contributions to administered price inflation
Assessment rates
Water
Electricity
Education
Petrol
Diesel
Other
Administered prices*
Sources: Stats SA and SARB
Percentage points
* Percentage change over 12 months

MONETARY POLICY REVIEW
APRIL 2026
Administered price inflation is projected (as at the March 2026
MPC) to increase to
6.9% this year , although the one-off
reduction in the fuel levy should
add some downside
risk
relative to this baseline .
Fuel inflation distorts the measurement of
‘true’ administered
price inflation as fuel prices reflect the internationally determined
(unregulated)
basic fuel price
as well

as
regulated
components. 23 Excluding the basic fuel price
component ,
administered price inflation was 5.9% in 2025 and is projected
to remain around these levels over the medium term
.
Electricity and water prices
, which rose by 10.9% and 9.9%
respectively ,
exerted
significant
upside pressure to
administered inflation in 2025.
Since 2009,
prices for these
components have risen by six
-fold and five -fold respectively,
while economy -wide prices have about doubled.
Because
electricity and water are key inputs into production, persistent
large price escalations raise the cost structure of the economy

and erode competitiveness. With inflation broadly on a
downward trajectory, the widening real tariff increase heightens
the urgency of reforms to align administered price growth with
broader price trends.
Price increases for other administered components, such as
education and property rates, have been moderate, suggesting
partial indexation to headline inflation.
24 The shift to the 3%
inflation target should further temper administered price
increases.

Food and non-alcoholic beverages
inflation
Repeated and overlapping
shocks rendered food and non
-
alcoholic beverages (NAB) inflation unstable in 2025. After
averaging 2.6% in the first quarter of 2025, food and NAB
inflation roughly doubled to 5.1% in the third quarter before
receding to 4.2% in the final quarter of the year.

While weather -related vegetable supply disruptions
unwound
quickly, meat has exerted significant
and persistent
upside
pressure to food and NAB as the ongoing foot
-and-mouth
disease outbreak has constrained supply. Although vaccination

is underway, herds may take time to rebuild and return to
productivity.25

23 The regulated component comprises of domestic fuel taxes (including the
Road Accident Fund levy) as well as wholesale and retail margins .

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

25 While beef carcass prices have eased in recent weeks, weaner calf prices
have continued to trend upwards, suggesting market tightness for cattle
headed to feedlots.

Jan
Apr
Jul
Oct
Jan
Apr
International fuel refinery margin proxies*
Petrol
Diesel
Sources: Haver
and SARB
Rand per litre

* The difference between the daily basic fuel
price and rand -denominated Brent crude oil
price. Reflects refining, shipping and other
related costs.

Administered price inflation and indexation
Administered prices excluding the
basic fuel price and electricity
Headline inflation (annual per cent
average; lagged by one year)
Sources: Stats
SA and SARB
Percentage change over four quarters
-2

Contributions to food and NAB inflation
Other food
NAB
Sugar, confectionary and desserts
Vegetables
Milk, other dairy products and eggs
Meat
Cereal products
Food and NAB*
Sources: Stats SA and SARB
Percentage points
* Percentage change
over 12 months

APRIL 2026

MONETARY POLICY REVIEW

The rest of the food basket has seen more modest inflation
amid favourable domestic weather conditions, ample grain
stocks and subdued global price pressures. Food and NAB
inflation is expected to average 3.6% this year and to remain at
this level next year , before declining to target. Risks include
failure to contain the spread and impacts of animal diseases
and prolongation of the conflict in the Middle East that could
seriously affect fertiliser supply and keep diesel prices elevated

as well as expected
El Niño weather conditions later in the
year.26


Core inflation
Core inflation remained close to 3% in 2025, reflecting muted
core goods inflation
and relatively contained services
price
increases .27 Core inflation has benefited from a stronger rand,
easing inflation expectations and subdued ULC growth
. A
moderately restrictive policy stance has also helped mute price
pressures. Modest core inflation is mirrored
in the other
measures of underlying inflation, namely trimmed mean,
supercore inflation and the persistent and common component
of inflation that have remained broadly stable in the 3 −4% range
over the review period .


26 A total of 45% of global sulphur exports and 35% of global urea exports
pass through the Strait of Hormuz. Both components are crucial fertiliser
inputs.

27 Core inflation averaged 3.2% in 2025, from 4.
3% in the previous yea r.
Consumer food price inflation (March 2026 forecasts)

Percentage change over four quarters, September 2025 forecasts in brackets


Actual
Forecast
Weight
2015 ─25
2025Q3
2025Q4
2025*
2026Q1
2026Q2
2026Q3
2026Q4
2026*


Milk, other dairy products


* Annual average percentage change


Sources: Stats SA and SARB

1 000

Urea prices
Source: World Bank
US$ per metric ton

Underlying inflation*
Core inflation
Sources: Stats SA and SARB
Percentage change over 12 months
Inflation target
* Shaded region includes the range of supercore inflation,
core inflation, trimmed mean inflation as well as the
persistent and common component of inflation.

MONETARY POLICY REVIEW
APRIL 2026
Core goods inflation
exerted down ward pressure on core
inflation and repeatedly surprised to the downside as the large
-
weight and exchange
-rate-sensitive components benefited
from a stronger rand a s well as the growing share of cheaper
imported vehicles. Core goods inflation reached a five -year low
of 1.1% in November last year, before edging slightly higher to
1.3% in February 2026 . Despite risks from recent geopolitical
shocks, rand strength through the end of 2025
and a more
competitive domestic goods ma rket should continue to temper
price growth .28 The SARB forecasts core goods inflation to
average 2% this year and to stabilise at target over the medium
term.
S ervices inflation remained around 4% over the review period
,
before dropping 0.4 percentage points to 3.8% in February
this
year. The decline was due mainly to a marked easing in medical
insurance inflation in that month. 29 Medical insurance will likely
be surveyed again in April
2026 as some schemes have
delayed premium increases , which is expected to accelerate
inflation for this
componen t. Health insurance inflation has
persistently outpaced headline inflation (Box
8). Upward
pressure to services inflation also stemmed from rising housing
price increases .30
S pillover effects from sharply higher fuel prices pose a risk to
the services
inflation outlook. The SARB forecasts services
inflation to average 3.9% this year and to converge
to target by
2028.


28 SARB engagements with businesses show that internal selling price inflation
(includes price promotions, loyalty card usage and substitution purchases by
consumers) has generally been lower than headline inflation. Outcomes lower
than overall inflation can suggest increased promotional activity, downtrading
by consumers, margin compression or a combination of the three.


29 Medical insurance dropped 4 percentage points to 6.5% in February 2026 .

30 Housing inflation rose from 2.5% at the start of 2025 to 3.6% by the end of
the year, but this partly reflected base effects .

Components of core inflation*
Core goods
Services
Sources: Stats SA and SARB
Percentage change over four quarters
* Dashed lines indicate forecasts at the March 2026 MPC.
Dotted lines indicate forecasts at the September 2025 MPC.
Inflation target

APRIL 2026

MONETARY POLICY REVIEW

Medium-term inflation outlook
In the QPM, the medium
-term trajectory of core inflation and
consequently overall inflation, is explained by inflation
expectations, ULCs, the output gap and the exchange rate
gap.
Surveyed inflation expectations capture the subjective beliefs of
economic agents about the future trajectory of inflation and
generally influence behaviour. 31 The BE R’s two -years-ahead
inflation expectations eased to an all
-time low of 3.6% in the
first quarter of this year, partly reflecting modest historical
inflation outcomes given the backward
-looking nature of
surveyed expectations. However, expectations fell short of the
3.4% projected in the January MPC
forecast. In the QPM ,
inflation expectations are a weighted average of surveyed and
model-consistent (forward -looking) expectations. The SARB
projects inflation expectations to continue to moderate
− albeit
at a slower pace − and to stabilise at target by 2028. Easing
inflation expectations also indicate that agents are attentive to
the shift to a lower inflation target and to monetary policy overall
(Box 2).
Medium-term price pressure s also reflect labour market
dynamics. In the QPM , wage inflation is driven by the real ULC
gap and nominal ULC growth.
32 Real wage growth was muted

31 See O Coibion, Y Gorodnichenko and T Ropele, ‘Inflation
expectations and
firm decisions: New causal evidence’, December 2018.


32 The real ULC gap measures the deviation of real wages per worker from
productivity-aligned levels , while nominal ULC growth determines whether
Headline inflation (March 2026 forecasts)

Percentage change over four quarters, September 2025 forecasts in brackets


Actual
Forecast
Weight
2015 ─25
2025Q3
2025Q4
2025*
2026Q1
2026Q2
2026Q3
2026Q4
2026*


* 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

Two -years -ahead inflation expectations
- all
groups*
Actual
Sep 2025
Mar 2026
Sources: BER and SARB
Per cent
Inflation target
* Shaded region indicates interquartile range of
survey respondents; dashed lines indicate forecasts

MONETARY POLICY REVIEW
APRIL 2026
over the review period and is projected to remain disinflationary
over the forecast
period. Meanwhile, salary increases are
revised up, pushing
ULC growth
higher to 4.1% this year,
before declining to 2.7% in 2028.
33 Risks to this outlook are
skewed to the upside
, considering the historically strong
correlation between fuel prices, food inflation and wage growth.
The output gap remained small and negative over the review
period, exerting modest disinflationary pressure
. The gap is
projected to close from next year,
rendering its contribution to
inflation broadly neutral. The trajectory of the output gap is
largely similar to that in the October 2025 MPR .34
The exchange rate directly affects firms’ real marginal cost as
well as import costs. The rand appreciated over the review
period, strengthening from R17.21 to the US dollar at the
November MPC meeting to R16.33 at the March meeting
. The
real exchange rate also appreciated, with the exchange rate
gap shifting from undervaluation to overvaluation, easing
inflationary pressures. However, the rand recently lost some
ground amid
renewed dollar strength.
A worsening of

geopolitical tensions pose s risks to the ex change rate (and by
implication, inflation) outlook.

Conclusion
Headline inflation was contained over the review period,
reaching 3% in February 2026, precisely in line with
the new
target. It will be higher in the near term amid severe disruptions
to global energy markets. The rand has also weakened

somewhat , while fertiliser prices have risen, posing upside risks
to food inflation. Together, these factors present a
threat to
inflation expectations. Nevertheless, the SARB’s baseline
forecast projects inflation to remain within the tolerance band
this year and to stabil
ise at target from late next year.
The
conflict in the Middle East presents material upside risks to this
trajectory.


wage increase s or productivity decreases contributed towards inflationary
pressures.

33 ULC growth was projected at 3.
7% this year and 3% in 2027 in the October

2025 MPR .

34 The output gap is expected to be
-0.3%, -0.1% and 0% of potential GDP in
2026, 2027 and 2028 respectively.


Output gap
Sep 2025
Mar 2026
Source: SARB
Percentage of potential GDP

Exchange rate - rand to US dollar*
Actual
Mar 2025
Sep 2025
Mar 2026
Source: SARB
Rand per US$
* Dashed lines indicate forecasts

MONETARY POLICY REVIEW
APRIL 2026

Box 7 Rand strength mostly explains 2025 inflation forecast errors


The South African Reserve Bank (SARB) overestimated the 2025 headline inflation rate in most Monetary Policy Committee (MPC)
forecasts. 1 However,
errors narrowed markedly from the March
2025 MPC forecast as it became evident that inflationary pressures were subdued and
as the forecast
horizon shortened. Other forecasters experienced broadly similar performance, suggesting common challenges in medium
-term inflation forecasting.2

Early forecasts of headline inflation aligned with the SARB’s preferred 4.5% target at the time, consistent with the medium
-term convergence properties
of the Quarterly Projection Model (QPM). 3 However, headline inflation came out lower and averaged just 3.2% in 2025.


Overestimations were primarily due to core inflation,
as both core goods and services
were mostly overstated. The overprediction of core goods
inflation was driven by a stronger -than-forecasted rand, while that of services was due to benign rental inflation, muted unit labour cost growth and
lower-than-projected inflation expectations. 4 Forecast errors in non -core inflation were less pronounced, but mainly due to fuel inflation benefiting from
the stronger rand and stable global oil prices, while food and electricity inflation forecasts were relatively accurate.


The evolution of the 2025 inflation forecast errors underscores the challenges of
long-horizon forecasting amid elevated uncertainty. It also highlights
the role of successive MPC meeting forecasts in adjusting assumptions and risk assessments as new information emerges.


1 The forecast evaluation begins in November 2022
– the first meeting in which 2025 was included in the forecast horizon.


2 The SARB’s root mean square errors ( RMSEs ) are comparable to those of private sector analysts, at 0.3, 1.2 and 1.3 percentage points for the current
-year,
one-year-ahead and two -years-ahead horizons respectively, compared with analysts’ RMSEs of 0.5, 1.2 and 1.4 percentage points
respectively.

3 Prior to the announcement of the new 3% inflation target in July 2025 the operational target in the QPM was 4.5%.

4 The rand appreciated more than was expected owing to better
-than-expected domestic fundamentals and a weaker US dollar.


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

Percentage points
Sources: Reuters and SARB
Contributions to the 2025 inflation forecast errors
Services
Core goods
Fuel
Electricity
Food
Headline - SARB
Headline - Reuters
MPC dates

MONETARY POLICY REVIEW
APRIL 2026
Box 8 ‘Unhealthy ’ insurance inflation

With the exception of the COVID -19 period, South Africa’s health insurance
inflation (medical scheme premium inflation) has
consistently outpaced
headline inflation.1 Understanding the drivers of this pressure is critical for
assessing the overall inflation outlook.

Inflation for medicines and medical products and services has broadly
tracked headline inflation
. However, medical scheme premiums have
escalated at a rate well above it. An important driver is overutilisation: high
admission rates and rising care intensity are pushing up expenditure
.
Between 2014 and 2024,
intensive care unit admissions increased by

32.5% and
high care
admissions by 27.8%, while medical scheme
beneficiaries grew by only 4%
.2 Utilisation, as measured by hospital
admission rates and length
s of stay, exceeds that of comparable
Organisation for Economic Co
-operation and Development (OECD)
countries. 3

Healthcare spending in South Africa is amplified by demographics and
design failures. Medical schemes have an older risk pool , while the absence
of risk equalisation weakens cross
-subsidisation and reinforces adverse
selection.4 Market inefficiencies then compound costs,
diluting cost
containment and enable fraud and abuse. Meanwhile, inadequate oversight
of prescribed minimum benefits and practitioner
s, together with inefficient
price-setting, limits value-based purchasing.
5 Additionally, the third -party
payer model entrenches moral hazard and erodes cost discipline. 6

Health insurance p rice pressures may also reflect weak competition. Both
funder markets (medical schemes and administrators) and the hospital
market are highly concentrated. The three largest hospital groups account
for about 90% of admissions and the three largest administrato
rs cover
nearly 80% of all beneficiaries.

Sharp increases in health insurance premiums shift the adjustment burden
to the wider economy and entrench inefficiency. Premium increases are
expected to moderate as headline inflation declines and stabilises at target.
Reforms to curb unnecessary utilisation and fraud
, and to strengthen
competition, should reduce the relative price of health insurance and further
support overall inflation control.

1 Health insurance inflation has a weight of 12% in services inflation and 6.17%
in headline inflation.

2 See Council for Medical Schemes Industry Report, 2024 and
CMS Annual
Report , 2014.

3 See Competition Commission,
Health Market Inquiry: Final Findings and
Recommendations Report, 2019.

4 See Council for Medical Schemes,
CMS Industry Report , 2024. See also
Competition Commission (2019). Ibid.

5 Historically, tariffs were determined through collective bargaining between the
funder association (Represe ntative Association of Medical Schemes) and
practitioner and hospital association (Hospital Association of South Africa). The
Competition Commission prohibited this practice in 2003. Practitioners either
charge what the patient can afford or they accept th
e scheme rates. The
default payment mechanism is based on a fee
-for-service approach , which
encourages overutilisation and gaming.

6 See Competition Commission,
2019 . Ibid.

7 The Competition Commission Health Market Inquiry found that in 2016,
Netcare, Mediclinic and Life had market shares based on beds of 83% and on
admissions of 90%.

Health insurance inflation versus headline
inflation
Health insurance inflation
Medical services inflation
Medical goods inflation
Headline inflation
Source: Stats SA
Percentage change over four quarters


Under 4


2024 Total population (right hand scale)
Million (both scales)
Sources: Council
for Medical Schemes and Stats SA
Population and medical scheme beneficiaries
Age

MONETARY POLICY REVIEW
APRIL 2026
Conclusion

The conflict in the Middle East
has interrupted
global
disinflation and shifted the inflation outlook higher . Prices
for oil, gas, fertilisers and aluminium
have risen sharply
amid emerging supply shortages.
Meanwhile, u ncertainty
remains high regarding the conflict’s duration and intensity ;
while i
nfrastructure destruction
may
delay
supply
normalisation even after hostilities end. Inflation pressures
may also arise from countries replicat ing supply chains to
strengthen resilience.

Major c entral banks have paused rate cuts
at recent
meetings and are expected to remain cautious as they wait
for new information . This posture is hel
ped by p
olicy
settings that are generally moderately restrictive , affording
authorities more room to look through first -round energy
effects. Markets increasingly expect
most major central
banks to raise rates this year.

With uncertainty elevated, global financial markets are likely
to remain volatile. South African assets have
also sold off
amid risk aversion but have so
far been relatively resilient,
supported by improved macroeconomic fundamentals.


Spillovers from the shock are expected to affect but not
derail South Africa’s transition to the 3% target. Inflation
was at 3% in February 2026
, aligning with the SARB
’s
target. Headline inflation is projected to rise this year
but
remain within the
plus or minus 1
percentage point
tolerance band and return to target by late 2027.


Uncertainty remains high and the
scale of second -round
effects is difficult to quantify. Alternative oil
-price paths
suggest materially different inflation trajectories, with
potentially large non-linear pass -through effects. While the
QPM -implied policy rate path suggests rate cuts will be
delayed to the fourth quarter , scenario s show that it may
be necessary to raise rates (Box 1).

Domestic growth strengthened
to 1.1%
last year , w ith
momentum expected to
continue pushing it close to 2%
by 2028 . However, risks to household consumption
are
skewed to the downside
amid higher fuel prices and
potential squeeze on household real income and wealth.

In a less supportive global environment, growth and
resilience will depend more on domestic factors. Recent
de-risking gains can be reinforced through
speedier
implementation of
structural reforms, improved pricing
efficiency for administered goods and services
as well as
achievement of a prude nt public debt level.

MONETARY POLICY REVIEW
APRIL 2026
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 inflation generally refers to underlying
inflation, excluding the volatile elements (e.g. food and
energy prices). The SARB’s 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.

MONETARY POLICY REVIEW
APRIL 2026
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 selecte
d 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%), 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 used to be the policy rate set
by the SARB’s Monetary Policy Committee (MPC)
under
the classical cash reserve
monetary policy implementation
framework. It was the rate that commercial banks pa
id to
borrow money from the SARB.

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.

MONETARY POLICY REVIEW
APRIL 2026
Abbreviations

AI
artificial intelligence
ARS
Argentine peso
BER
Bureau for Economic Research

BIS
Bank for International Settlements
BoE
Bank of England
BoJ
Bank of Japan
BRL
Brazilian real
CAD
Canadian dollar
CHF
Swiss franc
CNY
Chinese yuan
CPI
consumer price index
DXY
US dollar index
ECB
European Central Bank
EUR
euro
Fed
Federal Reserve (United States)
FRA
forward rate agreement
GBP
British pound sterling
GDP
gross domestic product
GFCF
gross fixed capital formation
GVA
gross value added
HUF
Hungarian forit
IMF
International Monetary Fund
INR
Indian rupee
JPY
Japanese yen
JSE
JSE Limited
KRW
South Korean won
MOVE
Merrill Lynch Option Volatility Estimate
MPC
Monetary Policy Committee (South African Reserve Bank)

MPIF
monetary policy implementation framework
MPR
Monetary Policy Review
MTBPS
Medium Term Budget Policy Statement

MTEF
medium-term expenditure framework
MXN
Mexican peso
NAB
non-alcoholic beverages
NBER
National Bureau of Economic Research

OECD
Organi sation for Economic Co -operation and Development
OBEN
Occasional Bulletin of Economic Notes

MONETARY POLICY REVIEW
APRIL 2026
OPEC
Organi sation of the Petroleum Exporting Countries
PCCI
persistent and common component of inflation

PCE
personal consumption expenditure
PGM
platinum group metal
PLN
Polish zloty
PPI
producer price index
QLFS
Quarterly Labour Force Survey

QPM
Quarterly Projection Model
repo (rate)
repurchase (rate)
RMSE
root mean square error
S&P
Standard & Poor’s
SA
South Africa
SARB
South African Reserve Bank

SSA
sub-Saharan Africa
Stats SA
Statistics South Africa
TRY
Turkish lira
UK
United Kingdom
ULC
unit labour cost
US
United States
VIX
Volatility Index
WEO
World Economic Outlook
ZAR
South African rand


www.resbank.co.za