MONETARY POLICY
REVIEW
APRIL 2024
APRIL 2024
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ISSN: 1609-3194
Printed by the South African Reserve Bank
APRIL 2024
Preface
The primary mandate of the South African Reserve Bank (SARB) is to achieve and maintain price stability in the interest of
balanced and sustainable economic growth. In addition, the SARB has a complementary mandate to oversee and maintain
financial stability.
Price stability helps to protect the purchasing power and living standards of all South Africans. It provides a favourable
environment for investment and job creation and supports international competitiveness. The goal of price stability is quantified
through an inflation target, which is set in consultation with government. The target is a range of 3–6%, which has been in
place since 2000.
The SARB has full operational independence. Monetary policy decisions are made by the SARB’s Monetary Policy Committee
(MPC), which is chaired by the Governor and includes the deputy governors and other senior officials of the SARB.
The inflation-targeting framework is flexible, meaning that policymakers will seek to look through temporary shocks, thereby
avoiding excessive volatility in interest rates and economic output. The MPC takes a forward-looking approach to account for
the time lags between policy adjustments and economic effects. MPC decisions are communicated at a press conference at
the end of each meeting, accompanied by a comprehensive statement.
The Monetary Policy Review (MPR) is published twice a year and is aimed at broadening the public’s understanding of
the objectives and conduct of monetary policy. The MPR covers domestic and international developments that affect the
monetary policy stance.
The MPR is presented by senior officials of the SARB at Monetary Policy Forum meetings held at major centres across South
Africa in an effort to develop a better understanding of monetary policy through direct interactions with stakeholders.
Questions about the publication may be directed to Marlene Hugo at
APRIL 2024
Contents
Walking a tightrope

Boxes

Statements issued by Lesetja Kganyago, Governor of the South African Reserve Bank
Statement of the Monetary Policy Committee
Statement of the Monetary Policy Committee
Statement of the Monetary Policy Committee

APRIL 2024
Walking a tightrope
Executive summary and
overview of the policy stance
Despite considerable easing in global inflation over the past
year, a range of important prices continues to rise strongly.
The resulting stickiness in core inflation has slowed the path to
the 2–3% inflation targets that many central banks are trying to
achieve. Accordingly, as global interest rates stay high, many
emerging economies continue to experience currency volatility
and, often, higher-than-desired inflation. Some economies,
especially in Latin America, which moved faster to tame the
post-pandemic inflation surge, have been able to cut rates.
At home, headline inflation has generally eased but setbacks
have emerged in food and fuel prices in recent months, pushing
it closer to the upper limit of the target band. As inflation
risks emerge and materialise, and services prices normalise,
the path back to the target midpoint is expected to take
time. The repurchase (repo) rate at 8.25%, unchanged since
May 2023, remains broadly consistent with persistent inflation,
the uncertain domestic and global outlook, and getting back to
the 4.5% midpoint over the forecast timeframe.
Global inflation lower but targets elusive
Since peaking at 8.7% in 2022, global inflation has declined
significantly, as supply chains recovered from the pandemic
and constraints eased, taking pressure out of goods, food and,
later, energy price inflation. More restrictive monetary policy
has helped to moderate credit demand and signalled central
banks’ commitment to getting inflation back to targets. While
global headline inflation is projected to fall to 5.8% this year and
to ease further to 4.6% in 2025, the progression has not been
smooth. At the end of 2023, inflation remained at a still-high 6.4%
and inflation outcomes this year have surprised to the upside.
Convergence to inflation targets has slowed and become
less certain.1
The main obstacle to speedier disinflation lies in underlying
or core inflation, measured as headline inflation less food
and energy inflation. While core inflation has retreated from
the peaks recorded in 2022, it generally remains stubbornly
elevated. Part of the stickiness comes from the ongoing rotation
of consumption from goods to services and the continuing
recovery of profit margins, and part from the sustained demand
for labour and rising wages, particularly in advanced economies.2
1 The inflation and growth figures reported in this section are, unless
otherwise indicated, from the International Monetary Fund (IMF)’s
World Economic Outlook (WEO) Update of January 2024.
2 See, for instance, C Jones and H Clarfelt, ‘US inflation rise to 3.2%
highlights “last mile” challenge for Federal Reserve’, Financial
Times, 12 March 2024.
46ca8249-8b81-4f25-a852-4bf9f9852085
Deviation from target*
Headline inflation
* As at Mar 2024 unless otherwise indicated
** As at Feb 24
Source: Haver
Advanced
economies
Emerging
markets
US
Eurozone
Japan**
UK**
China
India
Brazil
Mexico
Indonesia
South Africa**


Percentage change over four quarters
Evolution of global inflation
Source: Haver

Percentage change over 12 months

Inflation in advanced economies
Source: Haver

Headline inflation
Services inflation
Core inflation

APRIL 2024
Emerging market economies have also experienced higherthan-expected services and core goods inflation, often
worsened by sustained currency depreciation.
Inflation outcomes have also been buoyed by stronger-thanexpected global economic activity, which expanded by 3.1%
last year. Economic growth, however, has varied across
countries and has generally not been robust. The United
States (US) economy expanded by 2.5% in the past year,
underpinned by fiscal spending, strong consumer demand and
a tight post-pandemic labour market. In contrast, economic
activity in the eurozone and the United Kingdom (UK) was
markedly weaker, reflecting ongoing geopolitical tensions in
Eastern Europe and sharply higher energy prices. High inflation
and tighter monetary policy further dampened household
spending.3 Growth in emerging markets, while slightly better
than previously projected, remains well below pre-pandemic
trends. The clearest link from slower growth to lower inflation is
found in China. In most of the rest of the world, the connection
between growth outcomes and inflation is less apparent.
On balance, with production levels in most economies below
trend, sustained spending by governments and, in some
places, the private sector has given impetus to global inflation.
Despite these and other efforts to support economic growth,
the outlook for the global economy remains broadly subdued.
Accordingly, the South African Reserve Bank (SARB) forecasts
trading-partner growth to soften this year, averaging 2.6%
(from 2.9% the year before) before recovering to 3.1% by 2026.
Expectations of softer economic growth in much of the world
economy should provide support to disinflation. Yet, further
disinflation is less certain, as seen in the recent monthly inflation
outcomes in South Africa and elsewhere. Slower convergence
to lower inflation raises questions about the current policy
settings and their relationship to long-run neutral rates, or
‘r-star’. If the interest rate consistent with stable inflation and
output at potential is higher than currently estimated, then
the policy stance may not be sufficient to reduce inflation.
Significant uncertainty attaches to the level and evolution of
r-star normally, and this problem has worsened in the postpandemic period. Large and persistent fiscal deficits, the
necessity to transition to a low-carbon global economy as well
as heightened geopolitical tensions all suggest an increase
in the real cost of capital.4 Equally, the apparent resilience in
3 Eurozone growth was estimated at 0.5% in 2023. On the reasons for
weak growth in the eurozone, see European Central Bank, Monetary
Policy Statement, press conference, Frankfurt: European Central Bank,
7 March 2024.
4 See G Benigno, B Hofmann, G N Barrau and D Sandri, ‘Quo vadis, r*?
The natural rate of interest after the pandemic’, Bank for International
Settlements Quarterly Review, Basel: Bank for International Settlements,
March 2024. See also I Schnabel, ‘R(ising) star?’, speech by Isabel
Schnabel, a Member of the Executive Board of the European Central
Bank (ECB), at the ECB and its Watchers XXIV Conference session on
Geopolitics and Structural Change: Implications for Real Activity, Inflation
and Monetary Policy, Frankfurt, 20 March 2024.
eu/press/key/date/2024/html/ecb.sp240320_2~65962ef771.en.html and
C Brand, N Lisack and F Mazelis, ‘Estimates of the natural interest rate
for the euro area: an update’, European Central Bank Economic Bulletin,
Issue 1/2024, Frankfurt: European Central Bank, February 2024.


Food and energy

Core goods

Services

Headline CPI

Percentage points
Contributions to headline inflation
in emerging markets
2015–19

Jun 2023
Dec 2023
2015–19

Jun 2023
Dec 2023
2015–19

Jun 2023
Dec 2023
Source: BIS
Emerging Asia
Latin America
Other
emerging markets
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 2023
South Africa’s trading partners Mar 2024
Per cent
Contributions to global growth*

Source: SARB
* Weights in brackets


APRIL 2024
economic activity suggests that policy today may not be as
restrictive as implied by the low pre-pandemic levels of the
neutral rate.
While perspectives on the unobservable r-star evolve,
uncertainty about the stance of policy will continue to set the
tone for monetary policy across most jurisdictions this year and
generate volatility in financial markets. For emerging markets,
these developments imply higher interest rates overall and a
slower decline in inflation.5
For many economies, high public-debt levels will remain
a focus of policy efforts. Reducing fiscal deficits and debt
levels will rebuild fiscal space and, in a context of ongoing
financing needs and inconsistent capital flows, help countries
to disinflate faster.
Domestic economic developments
and outlook
Like the trends observed for global inflation, domestic headline
inflation has come off the peak it reached in 2022, benefitting from
lower oil prices and some easing in food price inflation over the
past year. Headline inflation returned to the target band in June
2023 and averaged 6.0% for the year, down from 6.9% in 2022.
Amid slower-than-expected disinflation in food and volatility in
fuel prices, headline inflation has fluctuated in the range of 5–6%
over the past six months. More recently, services inflation has
risen sharply as some components normalised. These setbacks
suggest that the path back to the 4.5% midpoint of the target
band is likely to be bumpy and protracted.6
Nonetheless, headline inflation is forecast to moderate over
the course of this year, averaging 5.1% for the year as food
and fuel price inflation ease. Its return to the midpoint of the
target band, however, is only expected in the last quarter of
2025. The slower pace of disinflation reflects a range of issues,
including normalising services components and elevated
inflation expectations.
Administered prices continue to exert substantial upward
pressure on headline inflation. These regulated, public sectorcontrolled, prices impede efforts to bring inflation down and
maintain it at the midpoint of the target band; consequently,
they also erode competitiveness (see Box 1).7 Electricity and
water prices, in particular, have for several years inflated at
5 High global interest rates limit the scope for currency appreciation to
lower inflation in emerging markets. However, if r-star is underestimated,
interest rates in emerging markets are lower than they should be,
presenting a risk of further currency depreciation and thus higher inflation.
6 Headline inflation rose from 4.8% in August 2023 to 5.9%
in October and then fell to 5.1% in December before
rising again to reach 5.6% in February 2024.
7 See C Loewald, K Makrelov and E Pirozhkova, ‘The short-term costs
of reducing trend inflation in South Africa’, South African Reserve
Bank Working Paper Series No. WP/22/08, Pretoria: South African
Reserve Bank, August 2022.
dam/sarb/publications/working-papers/2022/WP%202208.pdf
Per cent of GDP

Fiscal balance ratio*
Source: IMF


Advanced economies
Emerging markets
* Dotted lines indicate forecasts
Percentage change over four quarters

Targeted inflation forecast*

* The bands around the central projection show confidence intervals
of 10%, 30%, 50% and 70%.
Sources: Stats SA and SARB
3–6% inflation target band

Midpoint

Index: Jan 2009 = 100

Administered prices
Source: Stats SA

Electricity
Water
Education
Assessment rates
Communication
Total administered prices
Headline CPI

APRIL 2024
rates well above the 4.5% midpoint of the inflation target band.8
Efficiency gains in these sectors would be important to ensuring
that long-run, cost-reflective prices are achieved soon. Other
administered prices, such as education and assessment rates,
are influenced by headline inflation outcomes and should be
more closely aligned to the target midpoint itself. Reducing
headline inflation would bring down administered price inflation,
creating a virtuous cycle.
In contrast to headline inflation, core inflation has averaged
closer to the midpoint of the target band for most of the past six
months.9 Core goods prices have put upward pressure on overall
core inflation, driven mostly by currency depreciation and higher
imported inflation. For the most part, services inflation surprised
to the downside, with housing inflation remaining muted and
transport inflation easing in line with the sharp disinflation in fuel.
Services prices were further kept in check by subdued real unit
labour costs (ULCs). However, that trend appears to have been
broken by the jump in services price inflation to 4.9% in February
2024, up from 4.0% in January.
Core inflation, however, is still expected to average 4.8% this
year – the same as in the previous year – before declining slowly
to the target midpoint in the final quarter of 2025. Services
inflation is forecast to rise from 4.2% last year to 5.0% this year,
and to remain elevated at 4.7% in 2025.
While inflation remains elevated, South Africa’s output growth
remains low, mainly due to an inadequate energy supply,
sharply deteriorated logistics capacity as well as low confidence
among businesses and households. Gross domestic product
(GDP) growth slumped to 0.6% in 2023, down from 1.9% in
2022 and 4.7% in 2021. This outcome amounts to very poor
output growth when measured against a growing population
and labour force, with South Africa’s output trajectory diverging
markedly from that of its emerging market peers.10
While growth in investment and household spending helped
the economy expand in the first half of 2023, their momentum
subsided in the second half of the year. Investment in renewableenergy production appeared to collapse, likely indicating frontloading of spending given intense load-shedding in the first
half of 2023 along with possible market saturation, and both
government as well as public sector corporation investment
contracted. Government consumption spending, however,
grew by 2.0% for the year. Downside pressures also emanated
from commodity export prices that continued to fall from the
highs reached in 2022, reducing the contribution of foreign
8 See Z Ismail and C Wood, ‘Review of administered prices in South
Africa: The petrol price’, South African Reserve Bank Special
Occasional Bulletin of Economic Notes: Special OBEN/23/01, Pretoria:
South African Reserve Bank, August 2023.
content/dam/sarb/publications/special-occasional-bulletins/2023/
special-ocassional-bulletin-of-economic-notes-2301-review-ofadministered-prices-in-south-africa-the-petrol-price-august-2023.pdf
9 However, core inflation jumped to 5.0% in February 2024,
up from 4.6% in January.
10 Domestic GDP growth fell spectacularly, and almost linearly,
from 3.2% in 2011 to just 0.3% by 2019.

Core inflation

Services

Core goods

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

* Dotted lines indicate forecasts
Midpoint
Index: 2000 = 100

2000 2003

GDP and GDP per capita
Sources: IMF, Stats SA, World Bank and SARB
Emerging markets GDP
Emerging markets GDP per capita
South Africa GDP
South Africa GDP per capita

APRIL 2024
demand to domestic growth. Accordingly, the second half of
2023 registered markedly poor growth performance, with the
economy narrowly avoiding a technical recession.11
The near- and medium-term outlook is for growth to increase,
albeit slowly, as electricity supply improves gradually,
underpinned by the ongoing private investment in renewableenergy generation and increased maintenance by Eskom.
Household consumption spending is also expected to
strengthen as inflation eases, wages rise, pension savings get
spent and job creation picks up with investment, helping to lift
growth over the medium term.12
Although the full implementation of the energy and logistics
sector reforms will ease the performance challenges in these
network industries, inadequate electricity supply and logistical
bottlenecks are expected to remain a drag on the economy.
In the near term, uncertainty around the reliability of electricity
supply persists as the grid remains fragile amid still-elevated
unplanned outages, as evidenced by the occasional bouts of
Stage 6 load-shedding earlier this year.13
Meanwhile, deflating commodity export prices, amid subdued
growth in China and weaker global industrial commodities
demand overall, will continue to weigh on domestic economic
activity.14 Longer-term upside growth momentum, whether
from stronger global growth or from sustained higher
commodity export prices, linked say to climate change,
remains hard to forecast.
The SARB projects both real GDP and potential growth
to improve to 1.2% this year and to rise to 1.6% by 2026.
Importantly, even if achieved, these growth rates remain well
below South Africa’s long-term average growth rate of about
2.0% and far below the 4.1% average growth for emerging
markets in the current year projected by the International
Monetary Fund (IMF).
The fiscal accounts remain under pressure from sustained
spending and slow revenue growth. The debt ratio remains
elevated and, coupled with high borrowing costs, means that
debt-service costs continue to be one of the fastest-growing
11 GDP contracted by 0.2% in the third quarter of 2023 before rebounding
and growing at a muted rate of 0.1% in the fourth quarter.
12 The two-pot pension reform takes effect from 1 September 2024.
It creates two pots: a savings pot that contains one-third of annual
contributions and a retirement pot that contains two-thirds, with
savers allowed to withdraw a portion of the savings accumulated in
the savings pot. The SARB assumes a pre-tax withdrawal of R40 billion
in the fourth quarter of 2024 and R20 billion per annum thereafter.
This is incremental to the R100–20 billion per annum of pension
withdrawal due to resignations.
13 The recent system adequacy assessment by Eskom showed that, over
the next five years, electricity supply remains inadequate in all scenarios
except the high energy availability factor (EAF) scenario. See Eskom,
Medium-term system adequacy outlook, Johannesburg: Eskom, 2023.
14 South Africa’s terms of trade are projected to decline to 103 index points
by 2026, from 114 index points in 2022.
Percentage change over four quarters

Real GDP growth*
* The bands around the central projection show confidence intervals
of 10%, 30%, 50% and 70%.
This chart shows seasonally adjusted data, as used in the QPM.
Sources: Stats SA and SARB
-1

Number of days
Days load-shed*
* Calculated as total hours load-shed divided by 24
Sources: Eskom X, ESP (app) account and SARB
Assumption

2018 2019 2020 2021 2022 2023 2024
YTD
2024 2025 2026
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
Stage 6
Total days
Jan 2024 MPC
Mar 2024 MPC
GDP*
Sources: IMF, Stats SA and SARB


Percentage change over four quarters

Real GDP

Mar 2024

Potential

Real GDP – emerging

markets**
* Dotted line indicates forecast
** IMF projections for 2024
and 2025

APRIL 2024
expenditure components.15 The R150 billion Gold and Foreign
Exchange Contingency Reserve Account (GFECRA) drawdown
should help in the near term; it has enabled National Treasury
to pencil in debt peaking at 75.3% of GDP as opposed to the
previous 77.7% of GDP in the 2023 Medium Term Budget
Policy Statement (2023 MTBPS). Despite this boost, the yield
curve remains steep, suggesting the importance of following
through on the articulated medium-term fiscal trajectory.
While investment is forecast to improve, low domestic savings
rates and weak export growth imply a weaker balance of
payments and increased demand for foreign savings. After
averaging -1.6% of GDP in 2023, the current account balance
is projected to slide deeper into deficit, reaching 3.3% of GDP
by 2026.
Overview of the policy stance
The six-month period covered by this Monetary Policy Review
(MPR), being October 2023 to March 2024, saw the SARB’s
Monetary Policy Committee (MPC) maintain a hold on the
repo rate. This rate has now been unchanged at 8.25% for five
consecutive MPC meetings. The repo rate was last adjusted in
May 2023, when it was raised by 50 basis points.
From the May 2023 MPC meeting onwards, monetary policy
has been moderately restrictive. Despite the present stance,
headline inflation has remained above the target midpoint for
36 consecutive months, and expectations held by the public
about future inflation have remained well above 5.0%, moving in
line with actual inflation outcomes. Although surveyed inflation
expectations softened in the first quarter of this year, the
evolution is less clear when considering the last three Bureau
for Economic Research (BER) data releases together. The data
paints a picture of a sideways movement. A large share of the
survey participants expects inflation outcomes above 6.0%
in two years’ time, showing that inflation expectations remain
too backward-looking. This suggests that caution should be
applied to assessing the policy stance.
The degree of caution that needs to be applied to rate decisions
in an uncertain and shock-prone environment is highlighted
by the guidance provided over the past six months by the
SARB’s Quarterly Projection Model (QPM). The November
2023 and January 2024 MPC forecasts suggested rate cuts
to commence in the first quarter of this year, while the March
2024 forecast suggested rate cuts to only begin in the May
2024 MPC meeting. Alongside the baseline (risk-neutral)
forecast, the MPC considers a range of global and domestic
scenarios that help to clarify the impact of the very wide range
of potential risks to the baseline. The MPC statements over
15 The 2024 Budget estimates debt-service costs to increase at an
annual average rate of 7.3% over the medium term compared with
8.8% at the time of the 2023 Medium Term Budget Policy Statement.
Per cent of GDP
Investment financing
Q1
Q3
Q1
Q3
Q1
Q3
Sources: Stats SA and SARB
Household savings
Corporate savings
General government savings
Current account balance
(inverse)
Investment
-15
-10
-5

Per cent
Repo rate and headline inflation

Sources: Stats SA and SARB

Nominal repo rate

Headline inflation


Proportion
Distribution of two-years-ahead business
inflation expectations*
* Standard deviations for 2019, 2021, 2022 and 2023 are 0.97, 1.10,
1.56 and 1.53 respectively.
Sources: BER and SARB
Midpoint
Inflation rate (per cent)

APRIL 2024
time indicate the particular risks that the MPC sees as being
material to the realisation of the forecast and its view of the
appropriate policy rate. Had the MPC adjusted rates in line
with the earlier more benign inflation forecasts, for example,
inflation expectations could have worsened materially, delaying
the path back to target and requiring higher rates again.
The QPM baseline forecasts move significantly as monthly
inflation outcomes are registered and impact on the starting
point for the forecast. Looking back over the past six months,
while the annual projections for headline inflation are broadly
stable, the timeframe for reaching the target midpoint shifted
out by a year from the September 2023 to the March 2024
forecast. Food and services price inflation moved significantly
higher than expected at the time of the September meeting.
As with headline inflation, the profile for core inflation has
remained broadly unchanged over the past six months,
suggesting that movements in the underlying components
have tended to offset each other. The March 2024 forecast
has services inflation substantially higher in both 2024 and
2025 on account of elevated inflation expectations as well
as normalising medical insurance and housing inflation.
Meanwhile, core goods inflation is markedly lower at 4.6% this
year (versus 5.2% in the September 2023 forecast) as the rate
of inflation for exchange rate-sensitive core goods eases in line
with falling global goods inflation and a somewhat more stable
exchange rate.
The three MPC meetings covered in this MPR – being the
November 2023, January 2024 and March 2024 meetings –
had similar backdrops. The QPM forecasts showed headline
inflation converging to the midpoint of the target band from
2025. Meanwhile, sticky core inflation and resilient labour
markets in advanced economies suggested that global policy
rates could remain ‘high for longer’, affecting the risk appetite
of investors.
The MPC assessed serious upside risks to inflation in each
of the three meetings, and these have remained broadly
unchanged from meeting to meeting. Oil markets remained
tight and supply chains strained by geopolitical tensions.
At the same time, domestic food price inflation remained
volatile and susceptible to El Niño weather conditions as well
as load-shedding. A weaker rand, along with elevated inflation
in trading-partner economies, added to imported inflation,
while inflation expectations remained elevated despite the
moderation in headline inflation.
Data leading up to the March 2024 MPC meeting suggested
renewed price pressures, with surprises also emanating from
services inflation. Some risks that the MPC had repeatedly
flagged materialised, especially rising core inflation. With
Real repo rate gap
Source: SARB


Per cent
2024 2025

Forecast
2019 2020

Actual

Sep 2023

Mar 2024

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

* Dotted lines indicate forecasts

Actual

Nov 2023

Jan 2023

Mar 2024

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

* Dotted lines indicate forecasts

APRIL 2024
the risks similar to those in previous meetings and judged
to be skewed to the upside, the MPC unanimously agreed
to keep the repo rate unchanged at 8.25% in each of the
three meetings.
Conclusion
South Africa’s inflation has fluctuated within the 5–6% range
since September 2023. Uncertainty regarding the path back
to the target midpoint has risen in recent months as new
risks emerged while others materialised. Amid setbacks in
recent domestic inflation outcomes, along with heightened
uncertainty about global disinflation owing to stickiness in
services inflation, markets now expect South Africa’s policy
rate to remain unchanged this year.
Beyond the ongoing monetary policy efforts, domestic
economic conditions can be improved by achieving a more
prudent public-debt level, improving the adequacy and
efficiency of network industries, lowering administered price
inflation, and keeping real wage growth in line with productivity
gains. Competitiveness can be boosted further by, among
other things, bringing South Africa’s inflation in line with the
inflation rates of its peer emerging markets and major trading
partners to stymie the excessive real appreciation of the rand.
Per cent

2022 2023 2024 2025 2026
Nominal repo rate*
Source: SARB

Nominal repo rate

Nov 2023

Jan 2024

Mar 2024
* Dotted lines indicate forecasts
Steady state

APRIL 2024
Box 1 Do fiscal and monetary policy
complementarities matter?
1 A Mian, ‘Dependence on credit to boost demand imperils the world economy
– we must correct the underlying imbalances’, International Monetary Fund
Finance and Development Magazine, March 2024, pp 26–27. See also
National Treasury, Macroeconomic Policy: A Review of Trends and Choices,
Pretoria: National Treasury, 2024.
national%20budget/2024/Macroeconomic%20Policy%20Review.pdf
2 P Honohan and A Orphanides, ‘Monetary policy in South Africa, 2007–21’,
WIDER Working Paper No. 2022/29, UNU-WIDER, March 2022.
tied.wider.unu.edu/article/monetary-policy-south-africa-2007-21
3 Over the next five years, about R1.1 trillion (or 27.2%) of all domestic debt,
including inflation-linked bonds, needs to be redeemed.
4 C Loewald, K Makrelov and E Pirozhkova, ‘The short-term costs of reducing
trend inflation in South Africa’, South African Reserve Bank Working Paper
Series No. WP/22/08, Pretoria: South African Reserve Bank, August 2022.

papers/2022/WP%202208.pdf
South Africa’s inflation target is an outlier when compared with peer
emerging markets and major trading partners. This, alongside the large
public-debt burden and elevated credit default risk, keeps long-term
inflation risks higher than they need be, depressing domestic demand
and adding to inequality.1 Honohan and Orphanides (2022) reach
similar conclusions and recommend a point inflation target of 3.0% for
South Africa rather than the current inflation target band.2
Among other economic benefits, a permanently lower inflation profile
can directly reduce borrowing costs and improve fiscal sustainability.
When debt levels are high and long-term interest rates respond to
increases in debt and inflation, the utility of inflation for fiscal purposes
(reducing real debt levels) falls away. In that context, more efficient
macroeconomic policy targets would lower real and nominal interest
rates and reduce debt-service costs. Over the next three years, about
R641 billion (or 15.6% of the total stock) of long-term domestic bonds
will mature.3 Lower expected inflation would allow that debt to be rolled
over at lower nominal and real interest rates, alongside the issuance
of new debt, significantly lowering future debt-service costs. A lower
inflation rate would also bring down administrative price inflation,
reducing the degree of indexation in public sector spending.4
The economic benefits increase further as the lower inflation rate pulls
down the real risk premium and real interest rate. This strengthens the
economy overall, increasing revenue and accelerating the gains to the
fiscal position. Less aggressive administered price inflation would also
ease pressure on private sector price determination.
To test the Honohan and Orphanides proposal, the South African
Reserve Bank (SARB) modelled the impact of targeting 3.0% headline
inflation over a five-year timeframe. The economic growth rate
decreases by about 0.3 percentage points relative to the baseline,
but the decline is quickly reversed and surpassed as the growth rate
strengthens by more than the initial weakening. The cost to growth
in the first year comes not from a rise in the policy rate, but from a
passive rise in the real rate as inflation expectations decline and the
currency appreciates. The faster that inflation expectations and inflation
itself moderates, the quicker the lower repurchase (repo) rate and a
stronger currency flows through to the long-term market interest rate
and economic growth.

Percentage points of GDP
Government interest payments*

Source: SARB
* Deviation from baseline
Percentage points
Real GDP growth*
Source: SARB
* Deviation from baseline


Percentage points of GDP
Government debt*
Source: SARB
* Deviation from baseline


APRIL 2024
The modelled estimates are consistent with South Africa’s experience
with sacrifice ratios (the growth cost of lower inflation), which shows
them to be small, reflecting relatively high monetary policy transparency
and credibility.5
In addition to the short-run dynamics of interest rates and inflation
expectations, the longer-term effects of a permanently lower inflation
rate are important. Lower inflation also helps to reduce inflation
volatility and hence interest rate risk, decreasing the cost of capital
and the hurdle rate for future investment. More certainty about the
trajectory for prices and costs further boosts the quantity and quality
of investment, generating gains for productivity. Lower inflation also
supports the competitiveness of exporting and import-competing firms
by decreasing the continuous real exchange rate appreciation caused
by domestic prices rising faster than those of trading partners.
5 M Reid and P Siklos, ‘Rationality and biases: insights from
disaggregated firm-level inflation expectations data’, South African
Reserve Bank Working Paper Series No. WP/23/07, Pretoria: South
African Reserve Bank, July 2023.
home/publications/publication-detail-pages/working-papers/2023/
rationality-and-biases--insights-from-disaggregated-firm-level-i; see
also A Kabundi and M Mlachila, ‘Monetary Policy Credibility and
Exchange Rate Pass-Through in South Africa’, South African Reserve
Bank Working Paper Series No. WP/18/04, Pretoria: South African
Reserve Bank, August 2018.
dam/sarb/publications/working-papers/2018/8690/WP1804.pdf; see
also A S Blinder, ‘Central-Bank Credibility: Why Do We Care? How
Do We Build It?’, American Economic Review 90(5), 2000, pp 1421–
1431; see also N Dincer, B Eichengreen and P Geraats, ‘Trends
in Monetary Policy Transparency: Further Updates’, International
Journal of Central Banking No. 72, March 2022, pp 331–348.
Percentage points
Repurchase rate*
Source: SARB
* Deviation from baseline


Nominal repo

Real repo
Box 2 Better demand measures of inflation still show
inflation risk
1 Core and trimmed mean inflation are designed to strip out the effect
of transient supply shocks on headline inflation.
2 High trimmed mean inflation may reflect the still-elevated food and energy
price inflation.
Headline inflation is back in the target band but as exogenous price
pressures fade, its stabilisation at the midpoint of the target band
will depend more on the underlying (core) inflation trajectory. Core
inflation, measured as headline inflation less the volatile components
prone to transient shocks (namely food, fuel and electricity), has
risen markedly from an average of 3.7% over the 2019–22 period to
4.8% in 2023. Goods prices have been a large contributor to core
inflation on account of lagged global prices and a relatively weak rand,
although these have eased over the past six months. More recently,
after resting closer to the midpoint of the target range for the first
four months of the review period (October 2023 – March 2024), core
inflation jumped 0.4 percentage points to 5.0% in February 2024 on
quickened normalisation of some components of the services inflation
basket.
Another measure of underlying inflation, namely ‘trimmed mean’
inflation, which excludes components with the highest and lowest
month-on-month changes (5% on either side), has risen markedly
in the post-pandemic period and has fluctuated in the 5–6% range
over the review period. The trimmed mean measure shows that a
large share (90%) of the consumer price index (CPI) basket is still
inflating above 5.0%.1, 2

PCCI

Supercore

Trimmed mean

Core
Percentage change over 12 months

Underlying inflation

Sources: Stats SA and SARB

3–6% inflation target band
Midpoint

APRIL 2024
Elevated inflation pressures also emerge from the persistent and
common component of inflation (PCCI) and a ‘supercore’ measure
recently developed by the South African Reserve Bank (SARB). PCCI
surged during the recovery from the pandemic, reaching a high of
6.3% in April 2023 before easing somewhat. The outcomes for PCCI
have, however, remained closer to the upper limit of the target band
over the review period.3 The PCCI for South Africa is obtained from
a factor model consisting of 79 subcomponents of the CPI basket at
the COICOP four-digit level of disaggregation. The PCCI separates
out idiosyncratic changes to a price from unobserved but persistent
and common components that capture underlying inflationary
dynamics. The PCCI is higher than core inflation, which mainly reflects
the below-average post-pandemic housing inflation and medical aid
inflation.4 The supercore measure also shows that inflation pressures
have risen as the economy recovered from the COVID-19 pandemic,
with outcomes hovering slightly above the target midpoint in recent
months. Supercore inflation is constructed from the core inflation
basket by isolating, via a Phillips curve, those components that are
sensitive to the output gap – a proxy for economic slack.5
However, there are fundamental differences between PCCI and
supercore inflation on the one hand and trimmed mean and core
inflation on the other. Perhaps most important is that exclusionbased measures (trimmed mean and core) may still reflect transitory
shocks but may not carry information about persistent shocks.6 PCCI
and supercore inflation are meant to serve as useful barometers for
demand-driven inflation pressures given their close association to the
degree of slack in the economy.7 These differences notwithstanding,
the four measures broadly indicate elevated underlying inflation
pressures in the domestic economy.
In summary, underlying inflation in South Africa is elevated, averaging
0.6 percentage points above the SARB’s preferred 4.5% midpoint
over the past six months. Alongside the upside risks to underlying
inflation such as inflation expectations, the normalisation of medical
aid insurance and rental housing inflation as well as currency
weakness, this indicates that the job of bringing inflation back to
target sustainably is not yet complete.
3 A Amaral, M Kruger, D Lekgeu and W Simbanegavi, ‘PCCI of SA’s CPI:
Estimating the persistent and common component of inflation for South
Africa’, South African Reserve Bank Economic Note, forthcoming.
4 As of February 2024, medical aid inflation is back to its long-term average.
5 S de Kock, M G Ferreira, M Rapapali, W Simbanegavi and M Tshenkeng,
‘A supercore inflation measure for South Africa’, South African Reserve
Bank Economic Note, forthcoming.
6 A Palazzi and W Simbanegavi, ‘Mind second round effects! The effects
of food and energy inflation on core inflation in South Africa’, South African
Reserve Bank Occasional Bulletin of Economic Notes: OBEN/23/01,
Pretoria: South African Reserve Bank, June 2023.
co.za/content/dam/sarb/publications/occasional-bulletin-of-economicnotes/2023/mind-second-round-effects-the-effects-of-food-andenergy-inflation-on-core-inflation-in-south-africa-june-2023.pdf;
see also A Amaral, M Kruger and M Reid, ‘Looking to the price setters:
what can we learn from firm-level inflation expectations data?’, South
African Reserve Bank Economic Note No. EN/2023/16, Pretoria: South
African Reserve Bank, November 2023.
7 Supercore inflation is, by construction, made up of only those CPI
components that are responsive to the output gap, while PCCI captures
inflation drivers that are common to all components of the CPI basket,
of which economic slack is one.


Headline inflation

Core inflation
Percentage points

Headline and core inflation deviation* from midpoint
Q1
Q3
Q1
Q3
Q1
Q3

Sources: Stats SA and SARB
* Based on the percentage change over four quarters

APRIL 2024
Global rates high for longer
Growth in global economic activity is expected to stabilise
this year, after two years of easing, and to increase slightly
next year. Meanwhile, global inflation is expected to continue
to moderate but to remain above major central banks’ targets
in 2024, converging to targets from next year. Interest rate
expectations have swung markedly over the review period,
initially reflecting market exuberance about faster disinflation
but recently becoming less sure of rate cuts amid signs of
stickier inflation. Still, expectations are broadly for rate cuts to
commence in major advanced economies in the second half of
this year, but the magnitude of the expected monetary policy
relief has been scaled back significantly. Risks to global inflation
remain tilted to the upside amid still-tight labour markets and
sticky services inflation in advanced economies.
Resilient global growth
Global economic growth is expected to reach 3.1% this year,
the same as in 2023.16 While economic activity in the US and
India is forecast to remain firm, most advanced and emerging
economies, including China, are set to grow more slowly than
they did in the decade leading up to the COVID-19 pandemic.
On a sectoral view, a strong rebound in the services sector
over the past two years has supported global growth even as
manufacturing activity weakened. Some improvement in the
global manufacturing sector is now expected, recovering from
the lows of the past few years.17
Advanced economies are forecast to expand at broadly the
same pace as in the past year. Country experiences differ,
however, with the US outperforming all the major advanced
economies, underpinned by firm consumer demand and a
still-buoyant labour market. Meanwhile, a modest expansion
in output is expected for the eurozone and the UK. Subdued
growth in the eurozone partly reflects sustained effects from
higher relative energy costs.18 Regarding the UK and Japan,
consumption remains soft and muted growth rates of 0.6%
and 0.9% respectively are projected for this year.
Growth in output has also bottomed out in emerging markets.
Output growth is expected to average 4.1% again this year,
and to rise to 4.2% over the coming year. The rate of expansion
in economic activity remains below the pre-pandemic trend,
reflecting persistent weak growth in some large economies.
16 Forecasts are from the International Monetary Fund’s January 2024
World Economic Outlook projections.
17 In the US, for instance, the Institute for Supply Management’s (ISM)
manufacturing new orders index is well ahead of the inventory index,
which typically implies a pickup in the overall Purchasing Managers’
Index (PMI) manufacturing index. Similarly, net export growth from
Asia has also increased, suggesting a rise in global goods demand.
18 Citi’s research illustrates that Europe’s large exposure to the
Russia-Ukraine energy shock may have resulted in a relative loss of
industrial competitiveness vis-à-vis emerging Asia; see Citi, ‘China’s
Manufacturing Glut and its Global Ramifications’, Emerging Markets
Economic Outlook and Strategy, New York: Citi, 16 February 2024.
-4
-2

Percentage change
Global real GDP*
Source: IMF

Pre-COVID-19 average

(2010–19)

* Dotted line indicates forecast
Percentage change

Real GDP growth projections
for advanced economies*
Source: IMF
* Shaded bars indicate forecasts

US

Eurozone

Japan
UK

Pre-COVID-19 GDP growth average (2010–19)

APRIL 2024
China’s economy is expected to slow this year, weighed down
by the ongoing weakness in the property sector and subdued
household consumption demand. Uncertainty remains about
the impact of recent fiscal stimulus measures and modest
credit easing.19 India, however, remains a ‘bright spot’ in the
world economy, with resilient domestic demand anticipated to
propel the economy to 6.5% growth this year and the next.
Meanwhile, growth is expected to soften markedly in Latin
America as high interest rates take their toll on economic
activity, with Brazil’s economy expanding by 1.7% this year,
down from 3.1% in the previous year.20 Economic growth in
sub-Saharan Africa (SSA) is forecast to expand by 3.8% this
year, helped by modest improvements in the region’s two
largest economies: Nigeria and South Africa.
The last mile in disinflation
could be harder
Although global inflation has declined significantly over the
past two years, the return of inflation to central bank targets is,
however, not assured, as the pace of disinflation has slowed
markedly. The disinflationary process has largely occurred in the
goods basket, benefitting from lower food and energy costs,
easing global supply conditions as well as restrictive monetary
policy.21 Meanwhile, inflation for the core basket has remained
relatively sticky across a range of both advanced and emerging
market economies, owing to elevated services price increases.
Sustained strong demand for some services in advanced
economies has prevented inflation for this component from
falling more strongly. Services inflation remained elevated
in February this year at 5.0%, 4.0% and 6.1% in the US, the
eurozone and the UK respectively. In turn, robust services
demand has underpinned labour market strength, providing a
feedback loop back to inflation. House price growth, housingrelated and non-housing services inflation across advanced
economies all remain elevated. As noted by the Bank for
International Settlements (BIS), services inflation is typically
more persistent and harder to slow compared with goods
price inflation.22
19 Growth of 4.6% in 2024 is projected, from 5.2% in the previous year.
According to Barclays Research, fiscal stimulus measures amounting
to approximately 1.6% of GDP were announced by the Chinese
government and include: 1) an increase of CNY1 trillion in special
treasury issuance to support post-disaster recovery and reconstruction
and to enhance disaster prevention, reduction and relief capabilities
(announced in October 2023), and 2) building more affordable
housing and renovating urban villages (announced in November 2023)
equivalent to another CNY1 trillion. In addition, plans to expand China’s
semiconductor manufacturing capacity remain on track. See Barclays
Research, China: Build it and they will come, 11 January 2024.
20 Latin America is expected to grow at 1.9% this year, from 2.5% in 2023.
21 Decompositions of inflation drivers suggest that the reversal
of negative supply shocks accounts for a large share of the
global disinflationary trend witnessed thus far. See P Pasimeni,
‘Supply or demand, that is the question: Decomposing eurozone
inflation’, Intereconomics 57(6), 2022, pp 384–393.
22 See P Amatyakil, D Igan and M Lombardi, ‘Sectoral price dynamics in the
last mile of post-Covid-19 disinflation’, Bank for International Settlements
Quarterly Review, Basel: Bank for International Settlements, March 2024.
Percentage change
Real GDP growth projections
for emerging markets*
Source: IMF

India
China
Brazil
Russia
South Africa

Pre-COVID-19 GDP growth average (2010–19)
-2

* Shaded bars indicate forecasts

Percentage change over 12 months

Core inflation
Sources: Haver and SARB

Advanced economies
Emerging markets
(excluding China)
Emerging markets
Percentage change over 12 months

Wage tracker
Source: Indeed Hiring Lab

UK
Canada
Eurozone
US

APRIL 2024
The persistence of services inflation in part reflects the sector’s
high labour intensity and sensitivity to wage dynamics. Wages
are still rising at rates inconsistent with productivity growth and
inflation targets. For instance, compensation per employee in
the eurozone grew by 4.5% year on year in the fourth quarter
of 2023, which was a slight decline from the 4.7% realised in
the third quarter.
At the same time, in emerging markets, headline inflation has
fallen steadily as the larger weight of food and energy costs
in the inflation baskets of these economies mostly fuelled
the disinflationary trend. Core inflation in emerging markets
has also fallen faster than in advanced economies, while still
remaining elevated. Labour markets have also not been as tight
as in advanced economies, which has reduced the feedback
between the goods (and services) and labour markets.
Several risks to global inflation remain or are emerging.
A resurgence in goods inflation either due to a pick up in
manufacturing demand or due to rising costs of supply would
further delay the achievement of inflation targets. Shipping
costs have risen recently due to disruptions in maritime traffic
associated with geopolitical tensions in the Middle East and the
drought-induced restrictions on freight shipping in waterways,
especially the Panama Canal. In addition, production costs are
expected to rise on account of geo-economic fragmentation
and the reconfiguration of supply chains.23
Baseline forecasts across most major central banks are
for inflation to converge to targets by 2026. The US Federal
Reserve (Fed) forecasts median core personal consumption
expenditure (PCE) inflation at 2.6% this year, declining to 2.2%
next year, while the European Central Bank (ECB) projects
eurozone inflation lower at 2.3% this year, stabilising at the
target next year. In the UK, inflation is expected to average
2.5% in 2025.
Timing of rate-cutting cycles uncertain
Although policy rates have likely peaked in most major
economies, the exact timing of the rate-cutting cycles remains
unclear. Recent commentary by both the US Fed and the ECB
suggests that the commencement of interest rate cuts will
be delayed due to higher inflation. While central banks have
remained steadfast about persistent inflation risks, markets
were initially over-optimistic about faster disinflation, pricing
in significant rate cuts in the first half of this year. They have,
however, become more aligned with central banks lately,
with rate cut expectations and magnitudes scaled back
appreciably. Nonetheless, expectations are broadly for central
banks to start easing interest rates some time this year. Japan,
however, remains the global outlier, having lifted its policy rate
in March 2024 – the first time since 2016.
23 Geo-economic fragmentation can be defined as a ‘policy-driven reversal
of economic integration between or among a set of countries, often
guided by strategic considerations’. See S Aiyar et al., ‘Geoeconomic
Fragmentation and the Future of Multilateralism’, International
Monetary Fund Staff Discussion Notes: SDN/2023/001,
Washington, D.C.: International Monetary Fund, January 2023.
Index (thousands)

Selected ocean container freight
Source: Bloomberg

China to US East Coast

China to Mediteranean
Timeline of central bank monetary cycles
Sources: Bloomberg and central banks
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

China
Chile
Brazil
Poland
Peru
Hungary
Czech Republic
Colombia
Israel
Mexico
Switzerland
Indonesia
Thailand
New Zealand
Korea
South Africa
Sweden
Taiwan
Norway
Philippines
Russia
US
Canada
India
UK
Euro area
Romania
Türkiye
Australia
Malaysia
Japan

APRIL 2024
With the exception of some early movers in Latin America that
began cutting rates in the past year, emerging markets are
more broadly expected to cut rates from the second half of
2024 and in line with slowing inflation. Brazil and Chile have
been cutting rates since the second half of last year and are
anticipated to ease rates further through to the end of the year
given the still-elevated real policy rates. Similarly, China has
been applying multiple easing levers since last year, and the
consensus expects most other central banks in Asia to start
cutting rates too in 2024.24
Risks to the outlook
Risks to the global growth outlook are broadly balanced. While
faster disinflation in advanced economies and a faster recovery
in China’s property sector could cause upside surprises to
global economic activity, a stall in disinflation or a resurgence
in inflation amid persistent tightness in labour markets and
renewed supply-chain tensions could achieve the opposite.
At the same time, a further weakening in China’s growth
could have material spillover effects to the global economy
(see Box 4). Meanwhile, geopolitical tensions could impact
on energy prices and the costs of goods supply, presenting
serious threats to global disinflation. Further risks to disinflation
could also emanate from policy mistakes by central banks.
There is also the prospect that rapid advancements in artificial
intelligence (AI) could enhance overall productivity, boosting
global growth and lowering global inflation, particularly
services price inflation.25 With advanced economies impacted
more by AI technology than emerging markets, the benefits are
expected to accrue mostly to major economies.26
24 Policy easing in China is distinct from the rest of emerging markets
as China has not had an inflation problem, and thus has not raised
rates,in the post-pandemic period.
25 See BNP Paribas, ‘The global economic impact of AI’, BNP Paribas
Markets 360, Paris: BNP Paribas, 9 November 2023.
26 Research by the International Monetary Fund suggests that nearly 60%
of the labour markets in advanced economies would be impacted by
artificial intelligence, compared to 40% in emerging market economies.
See K Georgiva, ‘AI Will Transform the Global Economy. Let’s
Make Sure It Benefits Humanity’, International Monetary Fund blog,
14 January 2024.
will-transform-the-global-economy-lets-make-sure-it-benefits-humanity
Percentage change over 12 months

Goods and services inflation
Sources: Haver and SARB

Advanced economies services inflation

Emerging markets services inflation

Advanced economies goods inflation (right-hand scale)

Emerging markets goods inflation (right-hand scale)
-2

APRIL 2024
Box 3 Explaining the diverse inflation performance
across emerging markets
1 We express the 2022–23 peak in year-on-year inflation in
standard deviations from the 2010–19 mean (the z-score) to
allow for comparison. A z-score is also applied to the latest
inflation reading to see how far inflation has normalised.
2 For example, in Brazil, the ex-ante real policy rate (headline inflation
minus inflation expectations one year ahead) rose to 9.7% in
July 2023 (the highest since 2006) while it peaked at 7.25% in
Chile in June 2023 compared with a previous record high of 4.7%
in 2008. In Mexico, the real policy rate rose to a peak of 7.5% in
January 2024, well above the previous high of 4.4% in 2019.
3 In all the Asian countries included in our sample, the latest reading
of seasonally adjusted real GDP remains below the 2015–19 trend.
With the notable exception of China, inflation across medium to large
emerging markets surged to multi-decade highs in 2022–23, driven
by common shocks to global energy and food markets as well as the
COVID-19-induced global supply bottlenecks. Despite the common
sources, the relative size of the inflation surge, both in headline and
in core terms, differed markedly across countries, pointing to the role
played by domestic factors.1
While all emerging markets saw inflation retreat in the past two years
as the global shocks dissipated, those that had seen the strongest
increase also generally saw the fastest decline. By and large, central
banks that had maintained exceptionally accommodative stances
saw the strongest rise in core inflation. However, where adequate
corrective action was taken – in the form of a swift shift to aboveaverage real rates – core inflation also receded fairly quickly.
Regionally, there was significant dispersion in the timing of inflation
peaks across emerging markets. Eastern European countries saw
outsized inflation peaks as the Russia-Ukraine war weighed heavily on
their currencies, alongside steep energy price increases. Meanwhile,
core inflation is taking longer to normalise, potentially reflecting secondround effects and the enduring impacts of the prolonged period of
negative real policy rates. Latin American countries also faced early
and sharp rises in inflation amid relative exchange rate weakness in
2020–21 as well as stimulative policies (monetary and fiscal) that closed
output gaps quickly, adding to core inflation pressures. However, the
sharp increases in policy rates eventually saw disinflation take root in
the region.2 In contrast, Asian economies, apart from India and the
Philippines, experienced relatively shallow and delayed inflation peaks,
reflecting more stable currencies (which reduced pass-through price
pressures), better-controlled demand/supply imbalances (due to the
gradual relaxation of lockdowns) and a slower return of real gross
domestic product (GDP) to pre-pandemic levels.3
Similar trends are also evident in South Africa where headline inflation
rose to a peak of 7.8% in July 2022, mostly in response to the same
global shocks, before moderating as these drivers subsided. Still, in
both headline and especially core inflation terms, the peak deviation
of inflation from the 2010s norms was low by emerging market
standards. The somewhat muted surge in domestic inflation mostly
reflects low food inflation pass-through from global prices, relatively
well-anchored inflation expectations and a timely policy response by
the South African Reserve Bank (SARB).
-4
-2

Percentage change over 12 months (z-score)
Headline inflation
Source: Haver
Czech Republic
Hungary
Poland
Chile
Peru
Colombia
Romania
Mexico
Thailand
Phillipines
Brazil
South Africa
Malaysia
Saudi Arabia
Indonesia
India

Peak

Latest
-5

Percentage change over 12 months (z-score)
Core inflation
Source: Haver
Hungary
Czech Republic
Poland
Mexico
Colombia
Chile
Romania
Peru
Phillipines
Brazil
Thailand
Malaysia
South Africa
India
Indonesia

Peak

Latest


Headline inflation

Core inflation
Number of countries

Timing of emerging market inflation peak
Q2
Q3

Q4
Q1

Q2
Source: Haver
South
Africa
Including South Africa

APRIL 2024
Box 4 Will Chinese growth sink the global economy
and commodity prices?
1 International Monetary Fund, World Economic Outlook, Washington, D.C.:
International Monetary Fund, January 2024.
2 See, for instance, JPMorgan, ‘China Outlook 2024: Bear with it’, JPMorgan
Research, New York: JPMorgan, 5 February 2024.
3 S Jean, A Reshef and G Santoni, ‘Dominance on World Markets: The China
Conundrum’, CEPII Policy Brief No. 44, Paris: CEPII, December 2023.
4 See the World Bank’s January 2024 World Economic Prospects.
5 D Furceri, J T Jalles and A Zdzienicka, ‘China Spillovers: New Evidence
from Time-Varying Estimates’, International Monetary Fund Spillover
Notes, Washington, D.C.: International Monetary Fund, November 2016.
For sub-Saharan Africa (SSA), see C Keller, M C Babic and A Utsav,
‘Deflating Dragon, Inflating Shunto’, Barclays: Global Economics Weekly,
February 2024.
6 See for instance, C Kolerus, P N’Diaye and C Saborowski, ‘China’s footprint
in global commodity markets’, International Monetary Fund Spillover Notes,
Washington, D.C.: International Monetary Fund, September 2016.
7 See L Edwards and R Jenkins, ‘The impact of Chinese import penetration
on the South African manufacturing sector’, Southern Africa Labour and
Development Research Unit (SALDRU) Working Paper Series No. 102,
Cape Town: SALDRU (University of Cape Town), July 2013. https://
www.opensaldru.uct.ac.za/bitstream/handle/11090/618/2013_102.
pdf?sequence=1
Growth in China is expected to soften again this year to 4.6%, from
5.2% in 2023.1 The persistent weak demand problem is exacerbated
by a deepening property crisis, elevated household debt, rising youth
unemployment as well as financially constrained local governments.2
One result has been a sharp deceleration in prices, with consumer
prices experiencing their most rapid decline in 15 years in January 2024,
falling 0.8% year on year. These developments raise the question of
how the growth slowdown in China, and the attendant deflationary
pressures, may impact on global growth and inflation.
China is both a major importer and a major exporter, with its exports
accounting for more than 15% of global exports. Slowing domestic
demand saw China’s non-energy imports decline by 6.2%, while its
exports fell by 7.5%, over the past year. In the same period, global
exports fell by 0.9%.3 A weaker Chinese economy weighs on global
trade and economic activity. A more pronounced growth slowdown (a
1.0% decline) could shave about 0.2 percentage points off global growth
this year.4
Spillovers from China to the rest of the world, however, are still relatively
small and differentiated across economies. For instance, a 1.0%
negative growth shock in China detracts less than 0.2% off Asia’s
growth, 0.25% off sub-Saharan Africa’s (SSA) growth and has an
almost insignificant impact for Europe, with the relatively larger impacts
for Asia and SSA reflecting China’s dominance as a trading partner for
these regions.5
Larger effects may accrue to major exporters of industrial commodities
to, and net importers of manufactures from, China. For South Africa,
declining Chinese industrial output adds downside pressures to
commodity export prices and depresses the country’s terms of trade.6
Calculations by the South African Reserve Bank show that a 1.0%
decline in China’s industrial production which results in a 5.0% fall in
commodity prices deteriorates South Africa’s terms of trade by 2.0%
after three quarters. On the other hand, China’s growing presence in
South Africa’s imports may contribute towards lower producer and
consumer price inflation in the domestic economy.7
Percentage change over 12 months*
Index
-60
-40
-20

China real estate

Property sales

Property starts

70-city house

price (right-hand

scale)
Source: China National Bureau of Statistics

* Year to date

US import prices

Eurozone import prices

China export prices
Percentage change over 12 months


Import and export prices
Source: Haver

At a global level, deflation in China may help global disinflation via
merchandise trade, but the impact on consumer prices is likely to
be limited.8
8 See H Qiao and M Ouyang, ‘Will China export deflation to the
world?’, Bank of America Global Research, 16 January 2024.

APRIL 2024
Tilting too far? Financial markets
and interest rate expectations
The past six months have seen substantial shifts in financial
markets’ expectations of global monetary policy adjustments.
Recently, markets have aligned more closely with central bank
views that uncertainty about the pace of disinflation remains,
and are now pricing in fewer rate cuts, spread further out
in time. At the same time, the conviction has strengthened
that economies will not slow sharply but instead will achieve
a ‘soft landing’. This, in turn, has spurred a rally in global
equities led by the US and European bourses. For South
Africa, markets now expect interest rates to remain elevated
for most of this year in line with more persistent domestic
inflation. Meanwhile, renewed weakness in bonds and rand
volatility indicate the ongoing concern around weak growth,
fiscal sustainability and other domestic factors that can prove
to be obstacles to disinflation.
Global policy settings
and financial conditions
Nominal policy rates remain high across many jurisdictions, with
most of the major global central banks holding rates steady for
extended periods as they continue to monitor the disinflation
process. For instance, the Federal Open Market Committee
(FOMC) left the Fed funds rate unchanged in the 5.25–5.50%
range for a fifth consecutive meeting in March 2024 while the
ECB has kept its main refinancing rate steady at 4.50% since
the September 2023 meeting. Having completed their hiking
cycles, central banks have been communicating firmly that
their decisions would remain data-dependent and that policy
easing would require clear evidence that inflation was declining
sustainably towards central bank targets.
Despite the caution displayed by major central banks, the
relatively fast fall in inflation through much of the past year
induced considerable market optimism, resulting in the pricing
of large rate cuts by the Fed and the ECB for the first half
of this year and further out. This resulted in a loosening of
global financial conditions, which have moved away from the
restrictive levels reached in the latter half of 2023.
Discerning policy direction
As the implied US policy rates declined significantly in
December 2023, renewed impetus was given to equities
values, and markets around the world rose.27 The MSCI
Advanced Economy and MSCI Emerging Market indices
increased by 5.2% and 5.0% respectively year to date.
27 Other factors may also have played a role, including the resilience of
corporate profits and the dynamism of tech stocks (e.g. the ‘Magnificent
Seven’ stocks).

Mar 2023 FOMC

Sep 2023 FOMC

Dec 2023 FOMC

Mar 2024 FOMC

Consensus Economics

Mar 2024 (last-quarter average)


Per cent
Evolution of the Fed dot plots
Sources: Consensus Economics and US Federal Reserve

Longer run

Fed

BoE

ECB (right-hand scale)

Advanced economy implied policy rates*
Per cent (both scales)
Sep
Nov
Dec
Oct

Sources: Bloomberg and SARB

Aug
Jan
Feb
Mar
Apr


* End of Jun 2024

APRIL 2024
This exuberance stands in some contrast, however, to central
banks’ official positions that have repeatedly cautioned
against excessive optimism that inflation would continue to
ease without setbacks. For instance, the Fed dot plots show
that more FOMC participants assessed the path of inflation
higher at the March 2024 meeting than at the time of the
December 2023 meeting. In addition, virtually all the FOMC
participants projected core inflation to average above the 2.0%
target by the end of 2025, indicating that recent inflation data
had raised uncertainty regarding the path of inflation.
Over time, however, and amid mounting evidence from recent
data releases of slowing disinflation, markets are now broadly
aligned with central bank projections for inflation. Interest rates
are now expected to stay elevated throughout much of this
year, both because the timing of rate cuts has been pushed
out and because the size of the cuts has been scaled back.
The US Fed, the ECB and the Bank of England (BoE) are now
all expected to cut rates later this year, with the ECB currently
expected to move first, in June. These expectations contrast
with earlier views that cuts would start in the first half of 2024;
at one point, for example, markets had anticipated a Fed cut
as early as March.
Despite ‘high for longer’ US rates, the dollar has depreciated
modestly over the past six months, with almost all the major
advanced economy currencies correspondingly stronger.
Sovereign bonds of advanced economies have been volatile,
with rates generally trending higher since the start of the year, if
still well below the highs reached in October last year.28 Global
equities, by contrast, have been buoyant, with the S&P 500,
Euro Stoxx 50 and Nikkei 225 all achieving record highs in
March 2024.
The performance of emerging market currencies has diverged
markedly since the previous MPR, with some gaining
against the US dollar over this period, albeit with some
prominent exceptions, including the Chinese yuan. The varied
performance reflects divergent growth outturns and other
domestic idiosyncrasies as well as the diverse monetary policy
stances and interest rate expectations. Desynchronisation in
monetary policy commenced this past year as the early and
fast hikers have been able to cut rates (along with expectations
of additional cuts) to prevent real interest rates from rising
further amid falling inflation. Meanwhile, some emerging
markets continue to face high and persistent inflation.
With policy rates expected to remain elevated in the major
advanced economies, especially in the US, real interest rate
differentials have compressed, exerting depreciation pressure
on currencies.
28 The US 10-year bond yield fell to 3.8% at the end of 2023, from a high
of 5.0% in late October, before edging higher again in early March 2024.


Basis points
Per cent
Emerging market policy rate expectations over
the next 12 months
Colombia
Russia
Hungary
Chile
Mexico
Brazil
Poland
Peru
India
South Korea
South Africa
Malaysia
Sources: Bloomberg and SARB

Expected change over the next 12 months
Current policy rate (right-hand scale)
Implied policy rate in 12 months (right-hand scale)

Columbia

Mexico

Brazil

Hungary


South Africa

Chile

India

Peru
Per cent
Jan

Apr
Jul
Interest rate differential between emerging markets
and the US
Sources: Central banks

Oct
Jan
Apr
Jan
Apr
Jul
Oct

APRIL 2024
South African financial
market developments
Despite the modest weakness of the US dollar and an increased
appetite for risk assets, the rand remained weak over the review
period, reflecting global and domestic idiosyncratic risks.
Domestic policy rate expectations have evolved similarly to
those of global money markets. At the end of 2023, forward
rate agreement (FRA) rates indicated that South Africa’s policy
rate would be lowered in the first half of 2024. However, the
FRA curve has since shifted higher, reflecting the slowing
pace of domestic disinflation and implying that rate cuts would
be deferred to early 2025. This contrasts with the surveyed
expectations of analysts, which indicate two to three rate cuts
in the second half of 2024.
While South African government bonds (SAGBs) initially also
benefitted from the improvement in risk sentiment, yields
remain sticky, particularly at the long end of the curve. Bonds
weakened in the week after the February 2024 Budget Speech,
despite government reaffirming fiscal consolidation measures
and announcing a withdrawal of R150 billion from the GFECRA
to reduce borrowing over the next three fiscal years. Intuitively,
given its positive impact on the public-debt ratio, the GFECRA
announcement should have compressed local bond yields.
This underwhelming yield outcome likely indicates either that
markets are taking time to assess the full impact of the move
or that markets also require a clear reduction in bond issuance
before yields reprice.29
After buying R11.2 billion worth of South African bonds in the
final three months of 2023, non-residents turned net sellers of
R12.7 billion worth of SAGBs in the first quarter of this year. The
strong performance in the October to December 2023 window
was driven by high-yield-seeking non-resident investors amid
heightened optimism about the loosening of monetary policy
in advanced economies. However, bond purchases reversed
this year, as yields on assets in advanced economies rose and
domestic risks increased.
Over the past six months, and despite the more favourable
global backdrop for part of that period, non-resident investors
were net sellers of rand equities, disposing of R70 billion worth
of South African equities.
29 While there has been a modest reduction in weekly nominal bond
issuance, there has also been a larger increase in non-competitive
auction allocations. In the primary market, the allocation was raised from
20% to 30%, and on the electronic trading platform (ETP) from 30% to
45%. Non-competitive auctions provide primary dealers with an option
to acquire bonds, on Thursdays, at the yields from the Tuesday auctions.
If prices rise between Tuesday and Thursday, the option is in the money,
and primary dealers will generally exercise it, implying a potentially higher
funding cost for government. The opposite is true if prices fall between
Tuesday and Thursday. This system provides an incentive for banks to
function as primary dealers, making a market in government bonds.
Per cent
South Africa’s forward rate agreement curve

Sources: Bloomberg and SARB
1X4
2X5
3X6
4X7
5X8
6X9
7X10
8X11
9X12
12X15


End of Dec 2023

End of Jan 2024

End of Feb 2024

End of Mar 2024

Basis points
Change in the SAGB curve
Sources: Bloomberg and SARB


R186
R2030
R213
R2032
R2035
R209
R2037
R2040
R214
R2044
R2048
R2053

1 week post Budget (21–28 Feb 2024)

Previous 6 months (Sep 2023 to Feb 2024)

YTD
Morgan Stanley Capital International Index

MSCI emerging markets

MSCI South Africa

MSCI China

MSCI excluding China

Index: 1 Sep 2023 = 100
Sep
Nov

Source: Bloomberg
Jan
Mar

APRIL 2024
Domestic monetary operations
There have been few notable developments in monetary policy
implementation over the past six months. The money market
surplus has averaged just over R80 billion recently, near the
middle of the R60–100 billion range in which the SARB aims to
keep the supply of excess reserves.30 Market rates have been
tracking the policy rate closely: secured interbank rates (on the
Strate platform) have been around 0.05% below the policy rate
recently, while the 3-month Johannesburg Interbank Average
Rate (Jibar) has compressed to around 0.1% above the repo
rate and foreign exchange (FX)-implied rates have likewise
been close to, if narrowly above, the policy rate.
Later this year, the money market surplus is likely to diminish
somewhat as funds for the Corporation for Deposit Insurance
(CODI), South Africa’s new deposit insurance scheme, flow
into the SARB, which is the initial manager of these resources.
The surplus is then likely to expand with the distribution of the
GFECRA funds to National Treasury. The timelines for this
operation are, however, yet to be finalised. As the SARB has
noted before, it is the interest rate set by the MPC, rather than
changes in the quantity of bank reserves, that defines the
monetary policy stance.
30 Banks are obliged to hold unremunerated reserves worth 2.5%
of liabilities, as adjusted. As of March 2024, required reserves were just
over R150 billion. Since mid-2022, the SARB has operated
a surplus system for monetary policy implementation, which means
that the SARB does not have to drain excess liquidity. Instead,
it remunerates these balances at the policy rate. The total supply of
reserves is the sum of required and excess reserves. Together with
notes and coin, of around R165 billion, these constitute M0, or
‘base money’, which totalled R377 billion in February 2024.

APRIL 2024

Per cent

Government bond holdings

Non-residents

Insurers

Other financial institutions
* ‘Other’ includes the public, private and personal sectors.
Sources: National Treasury and SARB

Banks

Local pension funds

Other*

Percentage
Investor holdings of emerging market government debt
Sources: IMF and SARB
Brazil
Domestic central banks
Foreign official
Domestic banks
Foreign banks
Domestic non-banks
Foreign non-banks
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
2004Q1
2022Q2
Chile
China
Colombia
Egypt
India
Indonesia
Mexico
Poland
Russia
South Africa
Türkiye
Box 5 The ebb and flow of portfolio investment
1 See M Amstad, E Remolona and J Shek, ‘How do global investors
differentiate between sovereign risks? The new normal versus the old’,
Bank for International Settlements Working Paper No. 541, Basel: Bank
for International Settlements, January 2016.
work541.pdf
2 According to National Treasury, in absolute terms, non-resident holdings
rose from R713 billion in 2018 to R899 billion in 2023.
3 This, however, is still well below the 76.0% share at the end of 2006.
Between 2006 and 2019, non-resident holdings increased by
29 percentage points while domestic non-bank holdings fell by
the same magnitude, allowing for more diversified portfolios by
domestic investors.
4 National Treasury data shows that holdings by insurers and local pension
funds increased from R483 billion at the end of 2017 to R933 billion by
the end of 2023.
Foreign investors expand the pool of potential buyers of South African
government bonds (SAGBs) and generally push up prices, enabling
the public sector to fund itself at relatively lower costs. When credit
ratings change, however, institutional buyers also change, in line with
their different investment mandates. South Africa’s inclusion in the
World Government Bond Index (WGBI) in April 2012, for example, was
followed by a sustained rise in foreign investor holdings of SAGBs.
These holdings peaked at 43.0% of outstanding SAGBs in 2018, up
from 9.0% in 2006. However, faltering growth and rising sovereign
risk in the late 2010s, alongside a less supportive global environment,
saw non-resident investors begin either reducing holdings or buying
fewer SAGBs.1 This process was accelerated by the exclusion of
South Africa from the WGBI in April 2020 following downgrades to
sub-investment grade and brought non-resident holdings to 25.0% of
all SAGBs issued by the end of 2023.2
As foreign investors buy less, the domestic financial sector tends
to absorb more. Domestic insurers, local pension funds and other
financial institutions, especially unit trusts, increased their share
of the (rising) SAGB stock to 51.0% by the end of 2023, up from
45.0% at the end of 2019.3 While unit trust holdings increased
sharply, the proportion held by insurers and pension funds declined
over the period – even though their absolute holdings still grew.4
Meanwhile, domestic banks’ holdings have risen by 5.0 percentage
points since 2019, reaching 21.0% by the end of 2023. Despite this
marked increase, sovereign bond holdings by South African banks
remain low by international standards (an average holding of 35%
in a sample of 12 emerging markets). Larger holdings of bonds
by domestic banks reflect in part the higher returns compared
to depressed foreign yields and helped to offset the rise in local
yields caused by less foreign demand, in turn helping to keep
government’s borrowing costs from rising further.5
The achievement of government’s announced fiscal consolidation
targets should enhance fiscal credibility and raise demand for
bonds over the medium run, while limiting supply, with positive
effects on yields.
5 Bond yields across the curve jumped up by between 160 and
200 basis points following South Africa’s exclusion from the WGBI
in early 2020. Holdings by domestic banks increased by 2.3%
and 3.2% in the first and second quarters of 2020 respectively.

APRIL 2024
Box 6 A reform for all seasons?
1 See M Bech, A Martin and J McAndrews, ‘Settlement Liquidity
and Monetary Policy Implementation – Lessons from the
Financial Crisis’, Federal Reserve Bank of New York Policy
Review, New York: Federal Reserve Bank of New York, 2019.
2 See R Greenwood, S Hanson and J Stein, ‘The Federal
Reserve’s Balance Sheet as a Financial Stability Tool’, Economic
Symposium Conference Proceedings (Federal Reserve
Bank of Kansas City), Jackson Hole, September 2016.
3 See European Central Bank, What is excess liquidity?,
Brussels: European Central Bank, December 2017.
4 See V Acharya, R Chauhan, R Rajan and S Steffen, ‘Liquidity
dependence: why shrinking central bank balance sheets is an uphill
task’, Economic Symposium Conference Proceedings (Federal
Reserve Bank of Kansas City), Jackson Hole, August 2022.
5 See C Borio, ‘Getting up from the floor’, Bank for
International Settlements Working Paper No. 1100,
Basel: Bank for International Settlements, May 2023.
6 See L K Logan, ‘Impact of Abundant Reserves on Money
Markets and Policy Implementation’, speech by Lorie K Logan,
Executive Vice President of the Federal Reserve Bank of
New York, during the Securities Industry and Financial
Markets Association Webinar, 15 April 2021.
newyorkfed.org/newsevents/speeches/2021/log210415
7 See G Afonso, M Cipriani, A Copeland, A Kovner, G la Spada
and A Martin, ‘The market events of mid-September 2019’,
Federal Reserve Bank of New York Staff Report No. 928,
New York: Federal Reserve Bank of New York, 2021.
8 See I Schnabel, ‘The Eurosystem’s operational framework’,
speech by Isabel Schnabel, Member of the Executive Board
of the European Central Bank, at the Money Market Contact
Group meeting, Frankfurt am Main, 14 March 2024.
9 See P Aberg, M Corsi, V Grossmann-Wirth, T Hudepohl, Y Mudde,
T Rosolin and F Schobert, ‘Demand for central bank reserves
and monetary policy implementation frameworks: the case of the
Eurosystem’, European Central Bank Occasional Paper Series
No. 282, Brussels: European Central Bank, September 2021.
The shocks of the post-global financial crisis era prompted central
banks in major advanced economies to expand their balance sheets
massively with, central bank reserves, to help ease deflationary
pressures, to provide liquidity to address market stress and financial
stability, and to reduce frictions in payment systems.1, 2
Very short-term interest rates in these economies are set by the
central bank, with less interbank activity between banks themselves
and with large central bank deposits or reserves on commercial bank
balance sheets. In the United States (US), reserves have grown by
US$3.49 trillion over the 2008–24 period, while they have increased
by £1.15 trillion and €3.45 trillion in the United Kingdom (UK) and the
eurozone respectively.
However, excess reserves can also generate costs. The postpandemic period, in particular, saw rapid growth in both money supply
and inflation in the wake of balance sheet expansions, prompting more
recent efforts to scale them back. When economic activity achieved
more normal levels, the additional liquidity increased returns to lending
and encouraged banks to extend new credit.3, 4
Some financing stresses can emerge, as the distribution of reserves
and not the absolute quantity begins to matter more, especially for
smaller banks which had less access to reserves.5 The distribution of
excess reserves and demand for them may be challenging to forecast
with precision, and some major central banks have taken steps to
increase the number of liquidity management instruments at their
disposal.6, 7, 8, 9
South Africa recently moved to an ample reserves system as its ‘new’
monetary policy implementation framework. To mitigate some of the
challenges associated with an excess reserves framework, South
Africa introduced a tiered floor rather than a pure floor system. In a
tiered floor, banks still trade in the interbank market to avoid attracting
penalties (repurchase (repo) rate less 100 basis points) when they
exceed their quota. This permits circulation of reserves.
Growing central bank reserves has enabled some advanced
economies to better address deflation and provide liquidity when
demand for safe assets accelerates. In more normal times, the use
of central bank balance sheets is more nuanced, and best practice
in operationalising central bank reserves is evolving. In inflationary
conditions, and where local-currency assets are not necessarily the
safest, surplus liquidity systems are likely to require more instruments
to limit risks to financial market efficiency, monetary policy objectives
and financial stability.

Trillions
Central bank reserves
Sources: ECB and Haver

Eurozone (€)

US ($)

UK (£)
Per cent
-6
-4
-2

Credit to GDP growth in advanced economies

UK

US

Eurozone

Source: US Federal Reserve

APRIL 2024
Real economy: a low ebb
The South African economy expanded by 0.6% in 2023 as
momentum from the post-pandemic recovery dissipated.
While the first half of the year saw modest upside surprises,
growth in the second half was derailed by logistical challenges
and electricity-supply constraints. Growth is forecast to reach
1.2% this year, benefitting from less intense load-shedding and
a recovery in household spending. Looking ahead, economic
activity levels are expected to pick up as load-shedding eases
further, with growth reaching 1.6% by the end of the forecast
period. The implementation of structural reforms in the energy
and logistics sectors remains key to restoring the economy’s
full productive potential.
Recent economic developments
Domestic economic growth slowed to 0.3% year on year in
the final six months of 2023 after expanding by 0.9% in the
first half of the year, reflecting serious headwinds to economic
activity. Load-shedding persisted in the second half of the year
while binding logistical challenges came to the fore, disrupting
economic activity.31 On the whole, annual GDP growth slowed
to 0.6% in 2023 – a sharp decline compared with the 1.9%
annual outturn for 2022.
At a sectoral level, the main drag on the economy came from
the primary sector, weighed down by agriculture. Despite
an ample field crop and harvest this past year, energy
shortages affected irrigation and farm operations, especially
in horticulture.32 At the same time, a recurrence of biosecurity
issues, especially foot and mouth disease in cattle and Avian
flu in poultry, negatively impacted on the livestock subsector.33
These adverse shocks were exacerbated by inefficiencies
at ports and resulted in agriculture contracting by 12.2%
in 2023.34
The secondary sector grew modestly in the second half of
2023, in part reflecting some easing in load-shedding during
the period. However, the three sectors – manufacturing,
electricity and construction – all remain well below their prepandemic levels, with output generally volatile.35 The largest
subsector, manufacturing, showed some improvement, as
31 Logistical challenges over the past year included the marked
deterioration in the performance of rail and port operations as well
as road freight (trucking) disturbances along the N3 highway, which
is the main road freight corridor from Gauteng to the Durban harbour.
32 Output in the primary sector fell by 10.7% year on year in the second half
of 2023 compared with an expansion of 1.1% in the first half of the year.
33 W Sihlobo, ‘Key challenges that constrained SA’s agricultural fortunes
in 2023’, Agricultural Economics Today, 30 December 2023.
34 Mining grew by 0.6% in the second half of the year as it
benefitted from improved production in coal, platinum
group metals (PGMs), chromium and diamonds.
35 Manufacturing declined by 1.1% in the third quarter and increased
by 0.2% in the fourth quarter. The electricity sector improved
in both quarters, growing by 0.3% and 2.3% in the third
and fourth quarters respectively. Construction fell by
3.3% and 1.4% in the respective quarters.
Percentage change from quarter to quarter

Real GDP
Source: Stats SA


Percentage points
Sectoral contributions to GDP
Q3
Q1
Q2
Source: Stats SA
* Percentage change from quarter to quarter
Q4
Q3
Q1
Q2
Q4

Tertiary

Secondary

Primary

Total*

APRIL 2024
utilisation of production capacity rose by 0.4 percentage points
to 78.4% in the second half of the year. Meanwhile, the tertiary
sector contributed a full percentage point to the 0.6% outturn,
as transport, finance and personal services all expanded.36
The transport sector was the bright spot across all sectors,
especially in the fourth quarter, driven by land and air transport
as well as other general transport services.37 By contrast,
stagnant demand and higher borrowing costs weighed on
wholesale and retail trade.
Logistical constraints remain a severe disruptor to economic
activity, adding to the drag from load-shedding. Operations
at commercial ports have progressively deteriorated and rail
operations have been interrupted by widescale maintenance
issues as well as cable theft and vandalism. The declining volume
of goods transported by rail, alongside falling port productivity,
has affected Transnet and its core clientele, particularly the bulk
commodity producers.38 Load-shedding and the uncertainty
associated with it continues to inhibit growth, notwithstanding
some improvements coming from the greater use of alternative
energy sources and the return to service of three Kusile units with
a combined capacity of approximately 2 400 megawatts (MW).
With activity levels more subdued in the second half of the year,
the reasonably good job creation seen since 2021 slowed,
with employment contracting by 0.2% in the final quarter of
2023. Over the review period, the finance and construction
sectors experienced the largest employment gains, bolstered
by activity in the alternative-energy space.39 The strong
employment gains have allowed the economy to recover the
jobs lost during the pandemic, with both total employment and
formal non-agricultural employment now surpassing their 2019
levels, on a non-seasonally adjusted basis. Nevertheless, the
unemployment rate remained elevated at 32.2% in the final
quarter of 2023.
Household consumption was subdued in 2023, growing by
0.7% for the year – a sharp slowdown from the 2.5% reported
in 2022, with the weakness concentrated in the non-durables
subsector (food, beverages and tobacco).
Over the past two years, private sector spending on machinery
and equipment, largely energy self-generation, has underpinned
gross fixed capital formation (GFCF) growth. GFCF increased
36 The sector grew by 1.4% year on year in the second half of 2023
compared with the 1.2% achieved in the first half of the year.
37 The transport sector grew by 2.9% quarter on quarter and contributed
0.2 percentage points to GDP growth in the fourth quarter.
Apart from the substitution towards truck transportation and
away from the underperforming rail system, demand for road
transport was fuelled by increased online trade. See the BER’s
2023 Other Services Survey for the fourth quarter of 2023.
38 See Transnet, Freight Rail Report, Johannesburg: Transnet, 2023;
see also Transnet, ‘Transnet fully focused on dealing with delays at
ports’, media release, Johannesburg: Transnet, 20 November 2023;
also see Y Panchia, ‘Derailed: SA economy hinges on possible
Transnet turnaround’, Mining Review Africa, 17 October 2023.
39 Employment in the finance and construction sectors grew by 20.1%
and 9.3% respectively in the last six months of 2023 on a year-on-year
basis. See Statistics South Africa’s Quarterly Labour Force Survey
for the fourth quarter of 2023.

2018–19 average

TEUs* handled at South African ports
* Twenty-foot equivalent units
** Standard deviations from the 2018-23 average
Sources: Transnet National Port Authority and SARB
Standardised units**
Total handled
Saldanha
Cape Town
Gqeberha
Ngqura
East London
Durban
Richards Bay

Percentage change over one year
Employment by sector
Source: Stats SA
-10
-5

Agriculture
Mining
Manufacturing
Utilities
Construction
Trade
Transport
Finance
Community
services

2023H1

2023H2
* Weights in brackets
** Percentage change from quarter to quarter
Percentage points
Contributions to personal consumption expenditure*

Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Source: Stats SA
Services (51.5%)
Durables (9.8%)
Semi-durables (8.7%)
Non-durables (30.0%)
Total**

APRIL 2024
by 4.2% in 2023 – a slight decline from the 4.8% recorded in
2022, but with the momentum tailing off in the second half
of the year.40 Capital spending by public corporations slowed
significantly over the past year, remaining well below the 2019
levels, dragged down by the fragile financial positions of most
of the large state-owned companies.41
Growth outlook
Growth over the medium term will continue to be buoyed by
household spending as well as investment, albeit at muted
levels. The two-pot pension system and higher real salaries
linked to falling inflation should provide support to household
consumption, while spending on embedded-generation
projects and public sector capital projects should spur GFCF.
The intensity of load-shedding subsided in the final quarter of
2023 and remained muted through the first quarter of this year.
Nonetheless, the grid remains fragile, as demonstrated by the
ramp-up in load-shedding around the middle of February this
year. Despite remaining a serious risk to growth, electricity
supply is expected to gradually improve, as alternative energy
sources expand and are added to the grid by Eskom.42
The SARB projects load-shedding to shave 0.6, 0.2 and
0.04 percentage points from growth in 2024, 2025 and 2026
respectively – lower than the 0.8 and 0.4 percentage points for
2024 and 2025 respectively in the October 2023 MPR.
Approval of the Freight Logistics Roadmap in December 2023
suggests that important reforms in this space are gaining
momentum.43 Analysis by National Treasury shows that
implementing reforms to ease the various binding constraints
to economic activity would raise potential growth by at least
2.0 percentage points, with logistical reforms alone adding at
least 0.3 percentage points.44
Household consumption – the largest expenditure component
in GDP – should strengthen as inflation and borrowing costs
fall over time.45 Real disposable income is also expected to
benefit from the projected growth in total compensation of
about 1.8% per year. Still, a further boost to consumption will
40 Investment contracted by 3.8% and 0.2% in the third and fourth
quarters of 2023 respectively.
41 See I Odendaal, ‘What is happening with fixed investment?’,
media release, Cape Town: Old Mutual, 19 October 2023.
42 Operation Vulindlela assesses a total potential of at least 12 gigawatt (GW)
in new capacity following the electricity sector reform of 2022, of which
4 343 MW are expected over the next three years. See the Operation
Vulindlela progress reports for 2023. Meanwhile, an additional power
unit of 800 MW at Kusile is expected to be commissioned for commercial
operation in the next few months.
43 The road map’s priority interventions include returning locomotives
to service, collaborating with law enforcement to enhance safety and
security, and implementing a capital investment programme to facilitate
expansion plans. See Department of Transport, Freight Logistics
Roadmap, Pretoria: Department of Transport, December 2023.
44 National Treasury, Economic transformation, inclusive growth,
and competitiveness: Towards an Economic Strategy for
South Africa, Pretoria: National Treasury, 2019.
45 The QPM-implied repo rate declines gradually over the medium term,
ending the forecast period just slightly above its neutral level.
Index 2019 = 100

Gross fixed capital formation by sector

General government

Private businesses

Public corporations

Total
Source: Stats SA

Percentage change
Household consumption and fixed investment
Sources: Stats SA and SARB
Forecast

Household consumption expenditure

Fixed investment

APRIL 2024
emanate from the two-pot retirement reform which will take
effect on 1 September 2024.46 Accordingly, real spending by
households is forecast to grow by 0.9% in 2024, rising to 1.6%
in both 2025 and 2026.
While investment is expected to strengthen, headwinds remain
and should be addressed to get stronger outcomes. In all, the
SARB forecasts investment to expand by 0.7% this year, and
by 4.1% and 4.2% in 2025 and 2026 respectively.
The gradual relaxation of the electricity-supply constraint, along
with better investment outcomes and improved household
balance sheets, should lift both sentiment and activity levels.
Accordingly, the SARB forecasts real GDP to expand by
1.2%, 1.4% and 1.6% in 2024, 2025 and 2026 respectively.
Meanwhile, potential growth, which averaged 0.1% in 2023,
rises to 1.0%, 1.2% and 1.6% in the same respective years.
These growth outcomes, however, remain highly sensitive to
the realisation of the ongoing supply-side reforms.
Macro balances
The current account and its drivers
The sharp decline in South Africa’s commodity export prices
from their 2021–22 highs, together with elevated import prices
(particularly of oil), has dragged the trade account closer to
its long-run average. With the services, income and transfer
(SIT) account having remained around its long-term average,
this sharp correction in the trade account pulled the current
account balance back into deficit already in the second quarter
of 2022, and it has remained in deficit since. The current
account balance as a percentage of GDP recorded a deficit
of 1.6% in 2023 and is forecast to deteriorate further over the
medium term, ending the forecast period at 3.3%, compelling
South Africa to seek more external funding.
Over the review period, the trade account benefitted from the
narrowing in the manufacturing account despite mining exports
that continued to weaken in the face of logistical challenges and
weaker commodity export prices. This was mainly on the back
of lower imports, particularly in the machinery and equipment
subsector, while manufacturing exports, especially motor
vehicles, were elevated. Although the self-generation drive is
still ongoing, the front-loading of investments encouraged by
government’s solar investment incentives, alongside the slight
improvement in load-shedding this year, means that machinery
and equipment imports are unlikely to increase as rapidly as
they did in the past year during the surge in rolling blackouts.47
46 Under moderate assumptions about withdrawals from the new pension
system, the SARB projects real household spending to increase by
about 0.3 and 0.7 percentage points in 2024 and 2025 respectively.
See N Nesengani, R Ehlers, M Choonoo, A van Niekerk and T Janse
van Rensburg, ‘The two-pot retirement saving system: economic
impacts?’, South African Reserve Bank Economic Note, forthcoming.
47 The enhanced renewable-energy tax incentive for businesses,
announced in the 2023 Budget and valid until March 2025,
provides for a reduction in taxable income by 125% of the cost of
the renewable-energy assets used for electricity generation.
Total investment
Inventories
Household
consumption
Government
consumption
Percentage points
Contributions to GDP


Sources: Stats SA and SARB
Forecast
* Percentage change
Residual
Total exports
Total imports
GDP*
Percentage of GDP
Trade account
Source: SARB

-15
-10
-5

Q1
Q2
Q3
Q4
Mining
Manufacturing
Agriculture
Other
Total
Q1
Q2
Q3
Q4

R

US$

Index: 2015 = 100
Commodity price index
Source: SARB

APRIL 2024
Fiscal balances
The 2024 Budget Review presented a substantial improvement
in the fiscal outlook on the back of a large funding transfer of
R150 billion from GFECRA earmarked for reducing government
borrowing. National Treasury now projects public debt to
peak at 75.3% of GDP in 2025/26, down from 77.7% at the
time of the 2023 MTBPS. Nevertheless, public debt remains
concerningly high, as reflected in an elevated risk premium as
well as high long-term borrowing costs.
Tax revenue over the medium term is projected higher by
R66.1 billion relative to the 2023 MTBPS. The increase is
accounted for mostly by fiscal drag.48 However, the projected
commodity prices will remain a risk to the revenue position.
Meanwhile, the expenditure outlook over the next three fiscal
years was adjusted upwards by R24.6 billion compared with
the 2023 MTBPS.49 Considering the revenue and expenditure
components together, the fiscal deficit improves from 4.7%
of GDP in 2023/24 to 3.4% in 2026/27. However, the fiscal
balance is subject to risks such as support to ailing stateowned companies and higher-than-budgeted wage bill growth
over the medium term.50
Conclusion
Near-term domestic economic activity remains weak amid
subdued household spending and investment as well as the
underperformance of core economic infrastructure in the form
of energy-supply inadequacy and logistical bottlenecks. After
recording low growth of 0.6% in 2023, the economy is forecast
to expand by 1.2% in 2024, rising to 1.6% by 2026. These
projected growth rates are, however, especially sensitive to the
implementation of structural reforms in the energy and logistics
sectors.
48 A further boost to revenues is expected from the two-pot
retirement reform. This, however, is not in the baseline.
49 Non-interest expenditure is higher by R54.8 billion while debt-service
costs are expected to decline by R30.2 billion over the medium term
relative to the 2023 MTBPS.
50 L Siboyi, L Soobyah, M Tshenkeng and N Bambani, ‘Budget 2024: risks
underlying the fiscal position’, South African Reserve Bank Economic
Note No. EN/24/03, Pretoria: South African Reserve Bank, March 2024.

Revenue

Revenue 2023 MTBPS

Revenue 2024 Budget Review

Non-interest expenditure

Non-interest expenditure 2023 MTBPS

Non-interest expenditure 2024 Budget Review

Percentage of GDP

Main budget revenue and non-interest expenditure*
Source: National Treasury

* Dotted lines indicate forecasts

APRIL 2024
Box 7 The outsized impact of short-run shocks on
gross domestic product forecasts in 2023
1 South Africa experienced large economic shocks in the form of recordhigh load-shedding, sharply binding logistics constraints, an acute decline
in the terms of trade and financial pressure on consumers.
2 A lower value for the root mean square error (RMSE) is preferred as this
indicates better forecasting accuracy for the model. The Reuters median
RMSE is 1.3 percentage points over same period.
3 The forecast errors for the SARB and the Reuters median were largely
similar, being 1.7 (1.5), 1.1 (1.0) and 0.3 (0.3) percentage points for the
SARB (and the Reuters median) at the two-, one- and current-year-ahead
horizons respectively.
Economic forecasting depends on future economic variables
behaving in similar ways to their past relationships. Forecasting
becomes far more difficult when large economic shocks occur.1 This
box assesses the accuracy of the South African Reserve Bank’s
(SARB) gross domestic product (GDP) growth forecast for 2023.
While South Africa’s GDP grew by a very low 0.6% in 2023, this
poor growth rate was hard to foresee long before the year started.
The January 2023 forecast, the first of the year, was the first sign
of just how large the negative growth shock of accelerated loadshedding was going to be. Prior to the January 2023 Monetary
Policy Committee (MPC) meeting, GDP growth for 2023 was forecast
above 1.0%, reflected in a root mean square error (RMSE) of around
1.4 percentage points.2 Forecast accuracy improved substantially
after the January 2023 MPC meeting, as indicated by the RMSE
falling to 0.3 percentage points, reflecting a better understanding of
the economic shocks dragging growth lower.3
-2
-1

-2
-1

Percentage points
Contributions to the 2023 GDP forecast errors (forecast minus actual)
Sources: Stats SA and SARB
MPC meetings
Overestimated
Underestimated
Household expenditure
Gross fixed capital formation
Exports
General government expenditure
Change in inventories
Imports
QPM
Reuters (median)

Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Household spending was overstated in most forecasts prior to 2023,
as were company inventory holdings. Higher-than-expected inflation
undermined real disposable income, while companies relied on the
drawdown of inventories to mitigate supply disruptions arising from
more intensified load-shedding and logistical impediments.
Meanwhile,
exports,
investment
spending
and
government
consumption were mostly understated. Exports turned out higher in
line with South Africa’s trading partners’ growth, particularly growth
in the United States. Investment in renewable-energy projects picked
up more strongly than expected in response to worsening loadshedding and to government investment incentives for renewable-
power generation.
In conclusion, the overestimation of the 2023 GDP growth mostly
reflects unanticipated shocks. The SARB’s forecast errors are broadly
similar to the Reuters median, suggesting common sources of error.

APRIL 2024
Price developments:
disinflation path less certain
Headline inflation returned to the target range in 2023,
averaging 6.0% for the year, down from 6.9% in 2022. However,
the disinflation momentum has slowed, with headline inflation
hovering in the 5–6% range over the past six months amid
still-elevated food inflation and fuel price volatility. Pressure
has also emanated from core inflation which has shown strong
momentum in recent months, having remained closer to the
midpoint of the target band for most of the period. Headline
inflation is forecast to moderate to 5.1% in 2024 and to converge
to the midpoint over the medium term, as food, fuel and core
price inflation slows.
Headline inflation eased gradually over the past year, but with
monthly setbacks occurring in the year to date. Despite the
strong disinflation in goods prices, which largely explains
the moderation over the past year, slower-than-expected
disinflation in food and volatility in fuel prices continue to
frustrate the easing trend. Food inflation averaged higher in
2023 than in 2022 due to local factors such as excessive rains,
intensifying load-shedding and the outbreak of the Avian flu,
despite softer global agricultural commodity prices filtering
through to domestic prices.
The elevated headline inflation over the past year also reflected
a relatively strong rise in core inflation, which averaged
0.5 percentage points above the 4.3% outturn for 2022. For
much of 2023, core inflation remained closer to the midpoint of
the target band, with higher core goods inflation offset by more
subdued services inflation, and with the outcomes aligning
well with the SARB’s forecasts. However, in recent months and
amid some moderation in core goods inflation, services price
inflation has strengthened on the back of monthly insurance
outcomes and wage data.
Oil prices and fuel inflation
Fuel prices look set to continue shaping global inflation
outcomes. Brent crude oil prices dropped by 17.8% year on
year in 2023, with prices averaging US$80 per barrel in the
first half of the year. The latter half of the year, however, saw
a resurgence in prices as the Organization of the Petroleum
Exporting Countries (OPEC) tightened supply and conflict
erupted in the Middle East, driving prices up to an average of
US$85 per barrel. So far in 2024, Brent crude oil prices have
averaged US$84 per barrel, but with prices currently sitting
around US$90 per barrel.
Administered price inflation
Historically, the regulated price component of the inflation
basket has risen at rates above the upper limit of the target
band, averaging just under 7.0% per annum between 2013 and
2022. Over the same period, headline inflation averaged 5.1%
per annum. The divergence underscores the pressure that
-2

Electricity

Fuel

Food

Core

Headline*
Percentage points
Contributions to headline inflation

Source: Stats SA
* Percentage change over four quarters

Forecast
US$ per barrel

Evolution of oil price forecasts
Source: SARB
MPC meetings

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

APRIL 2024
administered prices exert on overall inflation. In the past year,
administered price inflation more than halved to 4.8%, down
from 14.0% in 2022. The sharp moderation, however, was
not the result of an overall shift in the drivers of administered
inflation, but rather of lower oil prices which resulted in fuel
inflation dropping by 33.7 percentage points to 0.6% between
2022 and 2023.
Because fuel inflation reflects international oil prices and
exchange rate effects, it can distort administered price inflation
overall.51 Administered price inflation excluding the basic fuel
price (BFP) averaged 6.3% last year, up from 5.4% in 2022, and
is expected to average 6.5% over the medium term.
Electricity price inflation climbed further to 11.7% in 2023 –
a percentage point increase from the 2022 average. For the
current year, the National Energy Regulator of South Africa
(NERSA) has approved a 12.74% increase in electricity prices,
which comes into effect in July and will run through to June
of 2025. The persistent large increases in electricity prices over
the past 15 years mean that this component has an outsized
influence on administered price inflation. Electricity prices are
expected to continue rising at rates above the upper limit of the
inflation target range over the medium term, in part reflecting
a normalisation of prices to more cost-reflective levels. The
SARB forecasts electricity prices to increase by 12.0% in 2024
and to average 10.0% over the medium term.
Meanwhile, other administered prices, including rates and
taxes as well as water tariffs, also continued to rise. Over
the review period, assessment rates nearly doubled to 8.4%
(from 4.3% the year before), while water tariffs rose to 9.6%.
The SARB expects inflation in these categories to remain
elevated in 2024.
While administered prices influence headline inflation, headline
inflation also bears on administered price inflation as it affects
the operating costs for public sector entities, including
municipalities and state-owned corporations that provide
regulated services. Employee-related expenses (including
staff benefits, bonuses and overtime) are a key driver of
operating costs, and these are generally indexed to inflation.52
Large increases in operating expenditure require equally large
increases in revenue and, in the absence of the disciplining
effects of market competition, this adds upward pressure on
administered prices. The immediate implications are three-fold.
First, permanently lower headline inflation will structurally lower
the rate of increase in administered prices given indexation.
Second, more efficiency-oriented cost recovery frameworks
should be considered to ensure incentive compatibility
51 Components in the fuel price basket that are regulated
include fuel taxes, levies and margins.
52 K Walsh, ‘Review of administered prices in South Africa: Municipal rates
and taxes’, South African Reserve Bank Special Occasional Bulletin
of Economic Notes: Special OBEN/23/01, Pretoria: South African
Reserve Bank, August 2023.
dam/sarb/publications/special-occasional-bulletins/2023/specialoccasional-bulletin-of-economic-notes-2301-review-of-administeredprices-in-south-africa-municipal-rates-and-taxes-august-2023.pdf


Actual

Mar 2024
Percentage change over 12 months

Administered prices excluding the basic fuel price*
Sources: Stats SA and SARB

* Dotted line indicates forecast
3–6% target band
Midpoint

Percentage change over 12 months

Electricity prices*
Sources: Stats SA and SARB

Actual

Sep 2023

Mar 2024
* Dotted lines indicate forecasts


Government inflation

Private sector inflation
Percentage change over 12 months

Inflation comparison
Sources: Stats SA and SARB

Midpoint
3–6% target band

APRIL 2024
for administered service providers. Third, where possible,
competition should be introduced to drive efficiencies and
enhance value for money for consumers.
Food and non-alcoholic
beverages inflation
Domestic food and non-alcoholic beverages (NAB) inflation
accelerated in 2023 despite global agricultural commodity prices
experiencing deflation throughout the year. The divergence
between global and domestic food inflation initially reflected
the delayed pass-through of easing global food inflation and a
weaker rand exchange rate. However, despite the passage of
time and some stabilisation of the rand, food price disinflation did
not materialise to the anticipated degree, pointing to domestic
idiosyncrasies as reasons for the elevated food inflation.
In 2023, food and NAB inflation rose sharply and averaged
10.7%, up from 9.2% in the previous year. Food and NAB
inflation peaked at 14.0% in March 2023 and has moderated
markedly to 6.1% in February 2024 – its lowest since April 2022.
The acceleration in food inflation last year was broad-based,
with over 87% of the subcomponents inflating at rates above
the 4.5% midpoint of the inflation target band. Nevertheless,
the bulk of the pressure emanated from increases in the prices
of bread and cereals, meat, vegetables as well as milk, cheese
and eggs. However, inflation for bread and cereals as well as
meat moderated markedly in the latter half of the year and
into early 2024.53 The decline in inflation for bread and cereals
reflects the eventual pass-through of lower global prices to the
domestic economy while lower meat inflation is on account
of improved slaughter rates and somewhat subdued demand.
Bread and cereals as well as meat inflation are forecast to
average 6.1% and 3.7% in 2024 respectively.
While the impact of vegetables as well as milk, cheese and
eggs inflation has been relatively small historically, inflation for
these two components accelerated strongly in 2023. Their
combined contribution to food inflation more than doubled in
2023 compared with 2022.
The effects of domestic idiosyncrasies – such as inclement
weather, load-shedding and biosecurity challenges related
to the Avian flu – largely explain why food and NAB inflation
remained high. Excessive rains affected vegetable yields
and prices, and also degraded the road infrastructure. Loadshedding impacted on irrigation schedules as well as the
cooling of milk tanks, both lowering yields and increasing
spoilage.54 Inflation for milk, cheese and eggs was further
aggravated by the outbreak of Avian flu that led to a shortage
of eggs in the latter months of the year.
53 Bread and cereals as well as meat inflation averaged 14.2%
and 6.5% in 2023 respectively. These components eased over
the review period to 6.1% and 1.5% respectively in February 2024.
54 Potatoes were particularly hard-hit by load-shedding.
Inflation for potatoes peaked at 64.6% in October 2023
and moderated to 32.8% in February 2024.
-8
-4

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

* Dotted lines indicate forecasts

Actual

Mar 2022

Sep 2022

Mar 2023

Sep 2023

Mar 2024

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

* Dotted lines indicate forecasts

Actual

Mar 2022

Sep 2022

Mar 2023

Sep 2023

Mar 2024

-2

APRIL 2024
Vegetables inflation eased sharply to 9.4% in February 2024
from its peak of 23.6% in October 2023 amid improved
supply. Milk, cheese and eggs inflation, however, remains
elevated at 12.0% in February 2024 (from 12.4% in
October 2023). Inflation for these components is expected to
decelerate further, averaging 3.8% and 6.8% for vegetables
as well as milk, cheese and eggs respectively this year.
Overall, the baseline forecast is for food and NAB inflation to
moderate to 5.5% this year and to fluctuate around the target
midpoint from 2025. However, upside risks have emerged
due to the El Niño-related drought over the past summer. The
maize harvest for the 2023–24 season is now expected to
decline by 25% year on year, which has seen a sharp jump in
the spot prices for maize recently.
Core inflation
Core inflation accelerated for a second consecutive year in
2023, averaging 4.8%, compared with 4.3% and 3.1% in 2022
and 2021 respectively. After hovering around the midpoint
for the first four months of the review period, core inflation
jumped up 0.4 percentage points to 5.0% in February 2024.
Despite the relative stability in core inflation, its constituent
components, especially core goods, have been significantly
more volatile. The QPM forecasts core inflation to average
4.8% this year and to only settle at the midpoint in the final
quarter of 2025, with the slower convergence attributable
mainly to elevated services inflation.
Percentage change over four quarters

2019 2020 2021 2022 2023 2024 2025
Food and NAB inflation*
* Dotted lines indicate forecasts
Sources: Stats SA and SARB

Actual

Mar 2022

Sep 2022

Mar 2023

Sep 2023

Mar 2024

Consumer food price inflation (March 2024 forecasts)
Percentage change over four quarters, September 2023 forecasts in brackets
Actual
Forecast
Actual
Forecast
Weight
2013–23
2023*
2024*
2023Q3
2023Q4
2024Q1
2024Q2
2024Q3
2024Q4
Food and non-alcoholic beverages


* Annual average percentage change
Sources: Stats SA and SARB
Percentage change
Components of core inflation
Source: Stats SA

Services

Core goods

Core inflation

APRIL 2024
Core goods inflation rose significantly in 2023, averaging 6.1%
for the year, up from 5.0% in 2022. This rise was primarily
due to a combination of higher global goods inflation and a
depreciated rand, pushing up large-weight, exchange ratesensitive items such as vehicles as well as alcoholic beverages
and tobacco.55 Core goods inflation is forecast to slow to 4.6%
in 2024 and to fluctuate around the target midpoint from 2025,
in part benefitting from favourable base effects.
Services inflation also gained momentum in the past year,
to 4.2%, from a relatively low 3.9% in 2022, adding upward
pressure to core inflation. At the start of 2024, however, services
inflation accelerated for the first time in four months, registering
4.0% in January before jumping to 4.9% in February on a
higher-than-expected increase in medical insurance inflation.
Subdued services inflation over the review period reflects
lower transport services inflation (in line with the moderation in
fuel inflation) and housing inflation which remains well below its
long-term trend.56
55 Inflation for motor vehicles averaged 7.7% in 2023 (6.0% in 2022)
and remained above the target range at 7.0% in February 2024,
while the 2023 outcome for alcoholic beverages and tobacco
inflation matched the 5.9% outcome of the prior year.
56 Housing inflation, with a weight of 32.0% in the services
basket, averaged 2.9% between October 2023 and
February 2024 against its long-term inflation rate of 3.6%.
Percentage change over 12 months (both scales)
Core goods inflation
Sources: Stats SA and SARB
* > 0 = depreciation

Core goods
FX-sensitive core goods
NEER (right-hand scale)*

-20
-10

Headline inflation (March 2024 forecasts)
Percentage change over four quarters, September 2023 forecasts in brackets
Actual
Forecast
Actual
Forecast
Weight
2013–23*
2023*
2024*
2023Q3
2023Q4
2024Q1
2024Q2
2024Q3
2024Q4

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

APRIL 2024
Services inflation is expected to rise strongly this year,
averaging 5.0% for the year, before slowly returning to the
midpoint over the forecast period. The elevated trajectory is
mainly due to a sharp rise in medical insurance inflation and an
expected normalisation in housing inflation towards its longerterm average. Medical insurance inflation surged to 12.9% in
February 2024 – a 6.0 percentage points jump compared with
January. Medical insurance inflation is forecast at 10.4% for the
full year, up from 7.5% in 2023 and 4.3% in 2022.
Medium-term inflation outlook
Over the medium term, inflation is shaped primarily by inflation
expectations, the real rand exchange rate, ULCs and the
output gap.
Inflation expectations provide guidance to price and wage
setting, with direct implications for inflation.57 Since the
previous MPR, the BER’s surveyed inflation expectations have
generally moved sideways, but well above the 4.5% mark.
Survey respondents currently see two-years-ahead inflation at
5.2%, down from 5.6% in the fourth quarter of 2023.
The rand exchange rate continues to be an important source
of inflationary pressure through its impact on imported inflation.
The starting point for the rand to the US dollar exchange rate
was R18.88 at the March 2024 MPC meeting (R18.45 at the
September 2023 MPC meeting). The implied rand/US dollar
exchange rate is, however, expected to appreciate by about
2.2% by the end of the forecast period. Meanwhile, the SARB’s
QPM predicts that, relative to its equilibrium, the real effective
exchange rate (REER) of the rand will improve from a startingpoint undervaluation of 6.7% to an overvaluation of 1.7% by the
end of the forecast period, reducing pressures on core inflation.
Another potential source of inflationary pressure over the
medium term is labour market dynamics. Price pressures
emanating from the labour market are measured using a
combination of the ULC gap and nominal ULC growth, with a
greater weight assigned in the QPM to the latter.58 The SARB
forecasts nominal salaries to increase by 5.6% in 2024 and
to slow to 5.4% in 2026.59 Subdued real wage growth, higher
productivity growth (in line with the projected better growth
outcomes) as well as nominal ULC growth around the target
midpoint over the medium term all suggest that labour market
contributions to inflation remain around the midpoint of the
target band.60
57 A Amaral, M Kruger and M Reid, ‘Looking to the price setters:
what can we learn from firm-level inflation expectations data?’,
South African Reserve Bank Economic Note No. EN/2023/16,
Pretoria: South African Reserve Bank, November 2023.
58 The ULC gap measures the difference between productivity-adjusted
real wages and its equilibrium level, while nominal ULC growth
determines whether wage increases or productivity decreases
contributed towards inflationary pressures. Nominal ULC growth is
expected to average 3.8% in 2024, 4.5% in 2025 and 4.3% in 2026.
59 Real salary increases are expected to average 0.4% in 2024
from -1.6% in 2023 before rising to 0.9% in the outer years.
60 Productivity growth is forecast to average 1.8% in
2024, 1.0% in 2025 and 1.1% in 2026.
Percentage change over 12 months

Services inflation

Sources: Stats SA and SARB

2023 2024

Services (excluding housing)

Services (excluding medical insurance)

Services

Per cent
Two-years-ahead inflation expectations
Source: BER

Businesses

Trade unions

Analysts

All surveyed participants

Sep 2023

Mar 2024
Per cent
2018 2019 2020 2021
2022 2023

2024 2025
Real effective exchange rate gap*
Source: SARB
-15
-10
-5

* Values < 0 imply undervaluations

APRIL 2024
The QPM projects that demand and supply conditions reflect
a fine balance between modest upward and downward
inflationary pressures, with the output gap forecast to average
close to 0.0% over the forecast period. The closure of the
output gap explains, in part, the return of core inflation closer
to the midpoint over the medium term.
Conclusion
Sharply lower fuel inflation throughout most of 2023 was
primarily responsible for headline inflation’s decline back into
the target band. While food inflation moderated throughout
the past year, it remains elevated, largely reflecting domestic
idiosyncrasies. The expectation is for food inflation to slow
further this year as biosecurity risks recede and load-shedding
eases somewhat. However, smaller crop projections following
the El Niño-related drought over the past summer may pose
some upside risk to food prices over the medium term.
Meanwhile, core inflation is expected to remain elevated at
4.8% this year, as the disinflation pressures in core goods are
countered by stronger inflationary forces in the services basket.
The SARB forecasts headline inflation to remain elevated at
5.1% this year, to ease to the midpoint of the 3–6% target band
by the fourth quarter of next year, and to oscillate around this
point for the remainder of the forecast horizon.


Actual

Sep 2023

Mar 2024
Percentage change over four quarters
2019 2020

2025 2026

Unit labour cost forecasts*
Source: SARB
-6
-4
-2

* Dotted lines indicate forecasts
Midpoint

APRIL 2024
Box 8 Weaker growth in 2023, but more inflation
than forecast
1 The root mean square error (RMSE) is a measure of forecast accuracy which
ensures that errors in opposite directions do not cancel each other out.
2 This was somewhat better than the Reuters median RMSE of 1.6, 1.0
and 0.2 percentage points at the two-, one- and current-year-ahead
horizon respectively.
3 Wages surprised on the downside with limited backward indexation
observed, against a forecast assumption of inflation‐linked wage
adjustments in line with historical outcomes.
The South African Reserve Bank (SARB) continuously evaluates
its inflation forecast errors to facilitate learning and improve future
forecasts. This box accounts for the inflation forecast errors of 2023.
Inflation in 2023 averaged 6.0%. This outcome was substantially
above the SARB’s forecasts from earlier Monetary Policy Committee
(MPC) meetings with a root mean square error (RMSE) of
1.5 percentage points at a two-years-ahead horizon.1 However, the
errors improved in later MPC meetings as the shocks of 2022 and
2023 became visible, resulting in the RMSE improving to 0.8 and
0.1 percentage points at the one- and current-year-ahead horizons
respectively.2 Food and core goods inflation stand out as key drivers
of upside surprises.
Persistent errors in food inflation were initially due to the large
unanticipated shock to global food prices in 2022 which was caused
by the Russia/Ukraine war, and later the result of the slower-thanexpected pace of disinflation. The rand was more depreciated, while
new domestic shocks emerged during the year, as discussed in the
main text.
Unlike food inflation, which was underestimated throughout the
period, core inflation was at first understated and then overstated.
Higher-than-expected outcomes in core goods inflation reflected
currency depreciation and a higher exchange rate pass-through,
coupled with elevated global goods inflation.
Core inflation was later overstated as services inflation surprised
lower, reflecting muted outcomes in housing inflation (which
constitutes nearly a third of the services basket), coupled with lowerthan-historical-average normalisation of key components such as
medical insurance and education fees. Subdued labour market price
pressures, alongside a negative but slowly closing output gap, also
moderated services inflation.3
Unanticipated shocks invariably impair the accuracy of forecasts
and require forecasts to be augmented by other data when making
policy, especially in periods of extraordinary uncertainty. The SARB’s
MPC evaluates inflation forecasts alongside a ‘balance of risks’
assessment, which intends to minimise policy mistakes.

Fuel

Headline

Core goods

Food


Services

Electricity

Reuters

Percentage points
2023 headline inflation forecast errors
Sources: Stats SA and SARB
MPC meetings

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


Services

Core goods

Core

Percentage points
2023 core inflation forecast errors
Sources: Stats SA and SARB
MPC meetings

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

APRIL 2024
Conclusion
Recent inflation data suggests that the path back to central
bank targets has slowed and become more uncertain.
Disinflation has slowed on account of sticky services inflation
across a wide range of economies, notwithstanding tighter
monetary policy in many jurisdictions. Forecasts by most of the
major central banks, including the Fed and the BoE, indicate
that a return of inflation to target has been pushed further out
to 2026. Inflation remains uncomfortably high in emerging
markets too, with equally slow returns to central bank targets.
The stubbornness of inflation raises the question of whether
monetary policy is appropriately calibrated: where is the
elusive r-star in relation to the real policy rates? A higher postpandemic r-star may explain the relatively slow disinflation seen
up to now and seems likely to keep rates at current levels for
longer than previously expected. The uncertainty about rates
has, in turn, sustained volatility in financial markets, adversely
impacting on capital flows, currencies and inflation rates in
emerging markets.
Stickiness has also been a feature of South Africa’s inflation,
with headline inflation remaining wedged in the 5–6% range
since September 2023. With some of the risks associated
with services inflation having materialised, and an increase of
other services components (including housing) to more normal
levels expected, uncertainty regarding the path of disinflation
has increased.
Despite inflation remaining closer to the upper limit of the target
band, the MPC has kept the repo rate unchanged at 8.25%
since May 2023, in part reflecting the weight given to growth
considerations. Monetary policy has remained moderately
restrictive since May 2023, with the recent increases in
headline inflation loosening its bite somewhat. Inflation
expectations remain well above the midpoint of the inflation
target band and need to be better anchored if headline inflation
is to stabilise and policy settings are to shift to neutral.
South Africa continues to face the challenges of persistent
inflation and a stagnant economy. The anaemic growth primarily
reflects energy-supply inadequacies, along with logistical
bottlenecks. While the constraints to growth associated
with network industries will remain evident in the near term,
expectations are that the worst is behind us, as reforms in both
the energy and the logistics sectors gather pace. Economic
activity is also constrained by high long-term borrowing costs,
reflecting South Africa’s high volume of borrowing. Elevated
borrowing costs have persisted for over a decade, dampening
confidence among businesses and households. As borrowing
moderates in line with the medium-term fiscal trajectory and
better-anchored inflation expectations, more currency stability
and lower inflation should open space for lower short-term
interest rates on a sustained basis. The SARB expects the
private sector to gain confidence and economic growth to
strengthen gradually in the next few years.

APRIL 2024
Statement of the Monetary Policy Committee
23 November 2023
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

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

Global growth in the Quarterly Projection Model (QPM) is a trade-weighted average of South Africa’s trading partners.

The number of days of expected load-shedding is 300 in 2023, decreasing to 150 days and 100 days respectively in 2024 and 2025. Estimates of the
average stages of load-shedding are multiplied by the number of days and then multiplied by the cost to gross domestic product (GDP) per stage-day.
The cost per stage was revised lower at the March 2023 Monetary Policy Committee (MPC) meeting. In nominal terms, these costs vary between
R0.0 million and R1.2 million for stages 1 and 2, and go up to R204–899 million for stages 3 to 6, when continued on a 24-hour basis on weekdays.
This will be assessed further as new data and information is received.

Although growth in the claims on the domestic private sector has slowed from 8.4% year on year in January 2023 to only 4.6% year on year
in September, real credit extension for the year to September is 0.3% above the average for calendar year 2022.

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

Potential growth is 0.1% in 2023 (up from 0.0%) and rising to 1.0% for 2024, 1.2% for 2025 and 1.6% for 2026.

The current account deficit in 2026 is forecast to be -4.0% of GDP. Exports are forecast to grow in real terms by 4.8% this year (from 4.5%) and by
2.9% in 2024. Our oil price forecast is higher than in September, averaging US$84 per barrel in 2023 and in 2024 before easing to US$82 for 2025
and US$80 for 2026.

Agricultural exports as well as vehicle and parts exports were up, while there was a sharp drop in machinery and electrical goods imports.
As we approach the end of the year, easing headline inflation
and modest economic growth remain the dominant global
economic trends of this past year. Output in the eurozone
is poor, while the robust growth seen in North America
is likely to moderate. China’s growth performance is still
weak, with few benefits for global commodity prices.1
Across most regions, monetary policy will continue to
focus on achieving inflation targets, while high debt levels
will require fiscal consolidation efforts. In the developing
world, financing conditions are expected to remain tight
and growth moderate.
The longer-term economic outlook, however, remains
uncertain. Weaker household consumption and falling
property prices may drag on growth for a sustained period.
Climate change and geopolitical tensions threaten supply
chains, output and prices.
With high interest rates and uncertainty, financial markets
and asset prices are expected to remain volatile, dampening
investor appetite and capital flows.
Taking these and other factors into account, the South
African Reserve Bank’s (SARB) forecast for global growth
in 2023 is broadly unchanged at 2.7% (from 2.6%) and 2.6%
in 2024.2
While South Africa’s electricity load-shedding has declined,
domestic growth in the near term is likely to remain muted.
Energy and logistical constraints are still binding on
economic activity and generally increase costs.3 We expect
electricity supply to increase gradually over the medium
term, however, helping to raise our forecast for output
growth in 2024, 2025 and 2026.
Spending by firms, households, public corporations and
general government remains positive in real terms, on an
annual basis. The disposable income of households is
expected to grow, albeit slowly. The investment forecast
for the year was revised up to 7.7% in September. Credit
growth to households and corporates has slowed in recent
months, but remains positive.4
Gross domestic product (GDP) growth for 2023 is revised
slightly upward to 0.8% from the September figure of 0.7%.
Our GDP growth forecast for 2024 and 2025 is increased
from the previous Monetary Policy Committee (MPC)
meeting, to 1.2% and 1.3% respectively, in large part due to
an expected decrease in load-shedding.5
While households and firms exhibit some resilience,
economic growth has been volatile and highly sensitive
to new shocks. A sustained reduction in load-shedding,
or greater energy supply from alternative sources, would
significantly increase growth. The operations of ports and
rail, however, have become a serious constraint.
At present, we assess the risks to the medium-term domestic
growth outlook to be balanced, as demand continues to
run ahead of the constrained supply environment. As a
result, our current growth forecast leaves the output gap
marginally positive.6
Turning to the inflation outlook, South Africa’s headline
inflation rate has increased more gradually than in many
other emerging and advanced economies. Nonetheless,
South Africa’s inflation rate remains sensitive to shocks.
While volatile in recent weeks, oil prices have increased over
the year and commodity export prices have moderated
further. South Africa’s external financing needs will increase
as the current account deficit expands from a forecasted
1.3% of GDP this year (from 2.0%) to 2.6% of GDP in 2024
and to 3.5% of GDP in 2025.7 The smaller deficit this year
is the result of significantly better-than-expected trade
outcomes in the third quarter.8
The rand weakened over the past year, depreciating by
about 9.5% against the United States (US) dollar. The
lack of sustained economic growth and dependence on

APRIL 2024
commodities is reflected in the high volatility of the currency
in response to global risk-on and risk-off episodes. The
implied starting point for the rand forecast is R18.76 to
the US dollar, compared to R18.45 at the time of previous
meeting.
Compared to September, fuel price inflation is broadly
unchanged for 2023, but lowered from 5.8% to 3.2%
in 2024.
Our food price inflation forecast for 2023 remains high at
10.6% (from 10.4%). The forecast for 2024 is slightly higher
at 5.5%.
Better monthly outcomes have led to a marginal downward
revision in our forecast for core inflation to 4.8% in 2023
(previously 4.9%) and to 4.6% in 2024 (from 4.7%). The core
inflation forecast for 2025 remains at 4.5%. The new 2026
core forecast is also 4.5%. Services inflation in 2023 is now
expected to come in at 4.3% (from 4.4%) before rising to
4.8% in 2024 (up from 4.6%). Core goods inflation remains
elevated but is revised lower for this year to 6.0% (from
6.3%).9 Growth in average salaries and unit labour costs
is forecast to be somewhat lower than at the time of the
September meeting.10
With few significant changes to underlying components,
headline inflation for 2023 is revised down slightly to 5.8%
(from 5.9%). The headline inflation forecast for 2024 is 5.0%
(down from 5.1%) before stabilising at 4.5% in both 2025
and 2026.
While our baseline inflation forecast has improved, risks to
the inflation outlook are still assessed to the upside.
Even as global headline inflation moderates, oil markets are
tight and core inflation is sticky. Despite the recent easing in
some food price components, domestic food price inflation
remains volatile, and increased in October to 8.7%. El Niño
conditions present longer-term concerns. Imported goods
inflation has increased over the year and, despite some better
recent outcomes, remains sensitive to currency weakness.
Electricity prices continue to present clear inflation risks and,
with logistics constraints, are likely to have broader effects
on the cost of doing business and the cost of living. Given
uncertain fuel and food price inflation, considerable risk still
attaches to the forecast for average salaries.

Core goods refers to total consumer price index (CPI) goods excluding food and non-alcoholic beverages (NAB), fuel and electricity, whereas services
include all surveyed services within the CPI basket. Core goods inflation is expected to be 4.5% in 2024, 4.4% in 2025 and 4.5% in 2026.
10 Average salaries are expected to rise by 4.6% in 2023 (down from 5.4%), by 6.0% in 2024 and by 5.4% in both 2025 and 2026. Unit labour costs
are forecast to rise by 4.6%, 4.5% and 4.4% respectively in 2023, 2024 and 2025. In 2026, unit labour costs are forecast to increase by 4.3%.
11 The G3 interest rates average 3.9% in 2023, 4.3% in 2024 and significantly higher at 3.4% in 2025 (up from 2.8%).
12 At the median, market analysts (Reuters Econometer) in November expect inflation to average 5.8% in 2023, 4.9% in 2024 and 4.6% in 2025.
Market-based rates are calculated from the break-even inflation rate, which is the yield differential between conventional and inflation-linked bonds.
The 10-year break-even inflation rate now sits at about 6.1%. The 20-year break-even inflation rate sits at 7.2%.
13 The Bureau for Economic Research (BER) Q3 2023 survey of inflation expectations indicated inflation at 6.1% in 2023 (from 6.5% in Q2), 5.5% for 2024
(from 5.9% in Q2) and 5.3% in 2025. BER’s next release is in the second week of December.
14 The forecasted trajectory for the repurchase (repo) rate implies a rise in the inflation-adjusted repo rate from -1.3% in 2022 to 2.7% in 2023 and 3.2% in
2024. The real repo rate level for 2025 is expected to be 2.9%. The real repo rates calculated here are based on the three-quarters-ahead inflation
forecast and are annual average rates.
Sticky inflation implies that average policy rates in the
G3 economies will remain high, at about 4.3% in 2024
compared to the 1.1% average rate seen in 2022.11 These
tighter global financial conditions will raise the risk profile
of economies needing foreign capital. Sharply lower tax
revenue, higher employee compensation and the ongoing
financing needs of state-owned enterprises are expected to
keep South Africa’s long-term cost of borrowing elevated.
Despite an expected moderation in inflation, long-term bond
yields currently trade around 12%.
Higher inflation has generally resulted in elevated inflation
expectations across markets, businesses and households.
Market-based expectations for inflation in 2023 are currently
5.8%, while the near-term break-even rates have dipped
to 4.3%.12 Medium- and longer-term market expectations
for inflation remain elevated. The September survey of the
Bureau for Economic Research shows average inflation
expectations lower at 6.1% for 2023. The MPC, however,
would prefer to see expectations anchored at the midpoint
of the inflation target band.13
Against this backdrop, the MPC decided to keep the
repurchase (repo) rate at its current level of 8.25% per year.
The decision was unanimous.
At the current repo rate level, policy is restrictive, consistent
with the inflation outlook and elevated inflation expectations.
Serious upside risks to the inflation outlook remain. In light
of these risks, the MPC remains vigilant and stands ready to
act should risks begin to materialise. Decisions will continue
to be data-dependent and sensitive to the balance of risks
to the outlook. The inflation and repo rate projections from
the updated Quarterly Projection Model (QPM) remain a
broad policy guide, changing from meeting to meeting in
response to new data and risks.
The policy stance aims to anchor inflation expectations more
firmly around the midpoint of the target band and to increase
confidence of attaining the inflation target sustainably over
time.14 The MPC will seek to look through any temporary
price shocks and focus on potential second-round effects
and the risks of de-anchoring inflation expectations.
Guiding inflation back towards the midpoint of the target
band reduces the economic costs of high inflation and will
achieve lower interest rates in the future. Since early 2020,

APRIL 2024
the MPC has been recommending additional means of
lowering inflation that are within the reach of the public
sector, including achieving a more prudent public-debt
level, increasing the supply of energy, and keeping
administered price inflation low and real wage growth in
line with productivity gains. Such steps would strengthen
monetary policy effectiveness and its transmission to the
broader economy.
Per cent
2017 2018 2019 2020 2021 2022 2023 2024 2025
Repurchase rate forecast (November 2023)*

90%

60%

30%

Repo rate

* The uncertainty bands for the repo rate are based on historical
forecasting experience and stochastic simulations in the QPM. The
bands are symmetric and therefore do not reflect any assessment
of upside or downside risk.
Source: SARB

APRIL 2024
Summary of assumptions: Monetary Policy Committee
meeting on 23 November 2023*
1. Foreign sector assumptions
Actual
Forecast

1. Real GDP growth in South Africa’s

2. Output gap in South Africa’s major trading-partner countries


3. Change in international commodity prices in US$

2. Domestic sector assumptions
Actual
Forecast


Notes
a.
Shaded areas indicate forecast assumptions.
b.
The figures in brackets represent the previous assumptions of the Monetary Policy Committee.
*
For an explanation of foreign sector assumptions and domestic sector assumptions, see pages 54 and 55.

APRIL 2024
Summary of selected forecast results: Monetary Policy Committee meeting
on 23 November 2023
Selected forecast results (annual)
Actual
Forecast
Steady
state


Notes
a.
The September MPC forecast was generated using the updated QPM. For more details on the updated QPM, see E Pirozhkova, J Rakgalakane, L Soobyah and R Steinbach, ‘Enhancing the
Quarterly Projection Model’, South African Reserve Bank Working Paper Series No. WP/23/05, Pretoria: South African Reserve Bank, June 2023.
b.
The nominal effective exchange rate (NEER) is based on the bilateral exchange rates of South Africa’s three largest trading partners (the eurozone, the US and Japan). The bilateral exchange
rates are weighted by export trade weights.
c.
The nominal exchange rate steady state is estimated using the Purchasing Power Parity (PPP) condition, which links the depreciation of the nominal exchange rate to the inflation differential
between South Africa and abroad. Given that the real effective exchange rate (REER) depreciation is zero at steady state, the nominal exchange rate will therefore depreciate by 2.5% per year
in steady state, reflecting the inflation (target) differential between domestic (4.5%) and foreign (2.0%) inflation.
d.
The REER is the NEER deflated by the consumer price differential between South Africa and the trade-weighted CPI of the eurozone, the US and Japan.
e.
The real exchange rate gap signifies the extent to which the real exchange rate deviates from its estimated equilibrium level. A positive gap shows an overvaluation of the currency, and vice versa.
f.
The repo rate at the end of the period refers to the average for the last quarter of the year. The nominal repo rate steady state is calculated as the sum of South Africa’s inflation target (4.5%)
and the steady state neutral real interest rate (2.5%).
g.
The neutral real interest rate (NRIR) is the policy rate minus inflation, which prevails when the economy is fully in balance, with inflation at target and output at potential. The policy stance is
measured as either tight or loose based on whether actual rates are above or below this neutral rate respectively. The steady state NRIR is calculated as the sum of the respective steady
states for the G3 NRIR (0.5%), South Africa’s risk premium (2.0%) and the change in the REER (0.0%). Before the steady state is reached, it is possible for the REER equilibrium to appreciate
or depreciate, so this value can have a non-zero value over the medium term. It is nonetheless always zero in the long run.
h.
The steady state is the long-run value in the model. While model equilibriums can have different values over the medium term, as conditions change, all equilibriums eventually reach a steady
state, where they stabilise.
i.
The forecast of the current account balance is obtained from the SARB’s Core Macroeconometric Model.
j.
Shaded areas indicate the forecasts of the Monetary Policy Committee.
k.
The figures in brackets represent the previous forecasts of the Monetary Policy Committee.
Selected forecast results (quarterly)
Year-on-year percentage change

Steady
state

1. Headline inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


2. Core inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Notes
a. Shaded areas indicate the forecasts of the Monetary Policy Committee.
b. The figures in brackets represent the previous forecasts of the Monetary Policy Committee.

APRIL 2024
Statement of the Monetary Policy Committee
25 January 2024
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

South Africa’s commodity export index is forecast to decline by 27.3% this year, by a further 11.9% in 2024 and by an additional 4.9% in 2025.
The index is forecast to fall by 1.6% in 2026.

Global growth in the Quarterly Projection Model (QPM) is a trade-weighted average of South Africa’s trading partners.

The number of days of load-shedding was 287 in 2023, and it is still expected to decrease to 150 days and 100 days respectively in 2024 and 2025.
Estimates of the average stages of load-shedding are multiplied by the number of days and then multiplied by the cost to gross domestic product
(GDP) per stage-day. The cost per stage was revised lower at the March 2023 Monetary Policy Committee (MPC) meeting. In nominal terms, these
costs vary between R0.0 million and R1.2 million for stages 1 and 2, and go up to R204–899 million for stages 3 to 6, when continued on a 24-hour
basis on weekdays. This will be assessed further as new data and information is received.

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

The potential growth forecast is unchanged from November 2023, at 0.1% in 2023 and rising to 1.0% for 2024, 1.2% for 2025 and 1.6% for 2026.

The current account deficit in 2026 is forecast to be -4.0% of GDP. Exports are forecast to grow in real terms by 4.3% this year (from 4.8%)
and by 3.9% in 2024. Our oil price forecast is higher than in November 2023, averaging US$82.6 per barrel in 2023, US$82 in 2024, US$81
in 2025 and US$80 in 2026.
As the new year begins, global economic conditions remain
mixed and the outlook uncertain. While headline inflation
continues to ease in much of the world, core inflation remains
sticky and high. Both the advanced and the emerging
economies are likely to see modest economic growth this
year, despite better-than-expected outcomes in 2023.1 In
most countries, reaching inflation targets, reducing fiscal
deficits and containing or lowering debt levels will stay as
key policy priorities. Financing conditions are expected to
remain tight.
The longer-term economic outlook is also uncertain, as
geopolitical tensions and climate change threaten supply
chains, output and prices. This uncertainty, alongside
high interest rates and debt, will dampen investor appetite
and capital flows, resulting in volatile financial markets and
asset prices.
Taking these and other factors into account, the South
African Reserve Bank’s (SARB) forecast expects relatively
weak global growth of 2.6% in 2024.2
The domestic gross domestic product (GDP) outcome for
the third quarter of 2023 was weaker than expected, at a
negative 0.2%. We expect the fourth quarter to show some
improvement, with output expanding by 0.4%. The weaker
performance of the economy in the latter half of 2023 is in
line with the SARB’s forecast.
The operations of ports and rail have become a serious
constraint and, alongside electricity shortages, contributed
to weak output growth and higher costs last year.3 These
constraints are expected to persist, severely limiting
the potential growth of the economy. While we expect
electricity supply to increase gradually over the longer
term, its contribution to short- and medium-term growth
has not been revised after the upward adjustment made at
the time of the November 2023 Monetary Policy Committee
(MPC) meeting.
On the demand side, household consumption and
investment have eased significantly, while government
spending has been sustained. As we highlighted throughout
last year, commodity export prices have receded sharply
from the highs reached in 2022, reducing the contribution of
foreign demand to growth.
For 2023 as a whole, GDP growth is revised down slightly to
0.6% from the November figure of 0.8%. Our GDP growth
forecast for 2024 and 2025 is unchanged from the previous
meeting, at 1.2% and 1.3% respectively.4
At present, we assess the risks to the medium-term
domestic growth outlook to be balanced. With the weaker
GDP outcome in 2023, our current growth forecast leaves
the output gap marginally negative and at zero in the outer
years of the forecast.5
Compared to many other emerging and advanced
economies, the rise in South Africa’s headline inflation rate
was more gradual and peaked lower. However, the return to
target has been slow. The inflation rate remains sensitive to
changes to both global and domestic supply and demand.
Due to global factors, oil prices remain generally high at
around US$82 per barrel. We expect them, however, to be
somewhat lower this year and the next compared to the
November forecast. Commodity export prices fell sharply
last year, by about 27%, and are expected to fall by a further
12% this year. As a result, and despite modest economic
growth, South Africa’s external financing needs will increase
as the current account deficit expands. We expect a deficit
of 1.4% of GDP in 2023 (from 1.3%), rising to 2.8% of GDP in
2024 and 3.6% of GDP in 2025.6
The uncertainties of the global environment, and various
South Africa-specific factors, including sluggish growth
and dependence on commodity export prices, continue to
weigh on the value of the currency. The rand depreciated
over the past year by about 11% against the United States

APRIL 2024
(US) dollar, making it one of the worst-performing emerging
market currencies. The implied starting point for the rand
forecast is R18.65 to the US dollar, compared to R18.69 at
the time of the previous meeting.
Fuel price inflation is expected to be low, averaging below
1% in 2024. Food price inflation is revised slightly higher for
2024, to 5.7%, but remains broadly unchanged over the
forecast period.
Core inflation was 4.9% in 2023. The core inflation forecast
for 2024 and 2025 is little changed at 4.6%, and at 4.5%
for 2026.
Services inflation in 2023 was 4.2%. The forecast for the
2024 services price inflation remains unchanged at 4.8%.
Core goods inflation was 6.1% in 2023, and is forecast to
ease to 4.5% this year.7 While average salaries grew less
than expected in the latter half of 2023, they are forecast to
hit long-term averages for the rest of the forecast period.8
Headline inflation was 6.0% in 2023. With few significant
changes to the forecasts for the underlying components,
headline inflation for 2024 is expected to ease to 5.0%, to
4.6% in 2025 and to 4.5% in 2026.
While our baseline inflation forecast is one of continued
gradual moderation in global and domestic inflation, the
risks to the outlook are still assessed to the upside.
Better-than-expected global growth last year and the
ongoing geopolitical tensions this year serve to keep global
oil markets tight. Despite some improvements, the advanced
economies continue to experience strong wage growth and
elevated core inflation.
South Africa’s imported goods inflation increased strongly
last year and, despite some better recent outcomes,
remains sensitive to currency weakness. The recent
increases in egg and potato prices remind us that
domestic food price inflation remains unpredictable and
high. Electricity prices and logistics constraints continue
to present clear inflation risks. With fuel and food price

Core goods refers to total consumer price index (CPI) goods excluding food and non-alcoholic beverages (NAB), fuel and electricity, whereas services
include all surveyed services within the CPI basket. Core goods inflation is expected to be 4.5% in 2025 and 4.4% in 2026.

Average salaries are expected to have risen by 3.9% in 2023 (down from 4.6%) and to rise by 6.1% in 2024, by 5.5% in 2025 and by 5.4% in 2026.
Unit labour costs are forecast to have risen by an estimated 4.7% in 2023 and to rise by 4.4% in both 2024 and 2025. In 2026, unit labour costs are
forecast to increase by 4.3%.

The G3 is the United States (US), Japan and the eurozone. The G3 interest rates averaged 3.9% in 2023 and are expected to be 4.3% in 2024, 3.4%
in 2025 and 2.2% in 2026.
10 At the median, market analysts (Reuters Econometer) in January expect inflation to average 5.0% in 2024 and 4.5% in 2025. Market-based rates are
calculated from the break-even inflation rate, which is the yield differential between conventional and inflation-linked bonds. The five-year break-even
inflation rate now sits at about 5.1%.
11 The Bureau for Economic Research (BER) Q4 2023 survey of inflation expectations indicated inflation at 5.7% in 2024 (from 5.5%) and 5.6% in 2025
(from 5.3%).
12 The forecasted trajectory for the repurchase (repo) rate implies an inflation-adjusted repo rate of 2.6% in 2023 and 3.1% in 2024. The real repo
rate level for 2025 is expected to be 2.8% and 2.7% for 2026. The real repo rates calculated here are based on the three-quarters-ahead inflation
forecast and are annual average rates.
inflation remaining volatile, risk still attaches to the forecast
for average salaries. Housing and services prices more
broadly, and in contrast, may continue to provide some
downside relief to the inflation risk profile.
Sticky inflation in the G3 economies implies that their
average policy rates will remain elevated, at about 4.3%
in 2024 compared to the 1.1% average rate seen in 2022.9
These tighter global financial conditions raise the risk profile
of economies needing foreign capital. South Africa’s longterm cost of borrowing is expected to remain high. Despite
the moderating inflation, long-term bond yields currently
trade at around 12%.
The rise in inflation in 2022 generally resulted in higher
inflation expectations across markets, businesses and
households in 2023. Medium- and longer-term market
expectations for inflation remain elevated.10 The December
survey of the Bureau for Economic Research shows that
average inflation expectations increased to 5.7% for 2024.
Achieving permanently lower inflation and interest rates
requires inflation expectations to be closely anchored to the
midpoint of the target band.11
Against this backdrop, the MPC decided to keep the
repurchase (repo) rate at its current level of 8.25% per year.
The decision was unanimous.
At the current repo rate level, policy is restrictive, consistent
with the inflation outlook and the need to address rising
inflation expectations.12 Serious upside risks to the inflation
trajectory from global and domestic sources are evident and,
as noted earlier, the economic outlook is highly uncertain.
The inflation and repo rate projections from the updated
Quarterly Projection Model (QPM) remain a broad policy
guide, changing from meeting to meeting in response to new
data. Future MPC decisions will remain data-dependent
and sensitive to the balance of risks to the outlook.
Guiding inflation expectations back towards the midpoint
of the target band will improve the economic outlook and
reduce borrowing costs. Since early 2020, the MPC has

APRIL 2024
been recommending additional means of strengthening
economic conditions, including achieving a more prudent
public-debt level, increasing the supply of energy, and
keeping administered price inflation low and real wage
growth in line with productivity gains. Such steps would
also strengthen monetary policy effectiveness and its
transmission to the broader economy.
Per cent
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Repurchase rate forecast (January 2024)*

90%

60%

30%

Repo rate

* The uncertainty bands for the repo rate are based on historical
forecasting experience and stochastic simulations in the QPM. The
bands are symmetric and therefore do not reflect any assessment
of upside or downside risk.
Source: SARB

APRIL 2024
Summary of assumptions: Monetary Policy Committee
meeting on 25 January 2024*
1. Foreign sector assumptions
Actual
Forecast

1. Real GDP growth in South Africa’s

2. Output gap in South Africa’s major trading-partner countries


3. Change in international commodity prices in US$

2. Domestic sector assumptions
Actual
Forecast


Notes
a.
Shaded areas indicate forecast assumptions.
b.
The figures in brackets represent the previous assumptions of the Monetary Policy Committee.
*
For an explanation of foreign sector assumptions and domestic sector assumptions, see pages 54 and 55.

APRIL 2024
Summary of selected forecast results: Monetary Policy Committee meeting
on 25 January 2024
Selected forecast results (annual)
Actual
Forecast
Steady
state


Notes
a.
The nominal effective exchange rate (NEER) is based on the bilateral exchange rates of South Africa’s three largest trading partners (the eurozone, the US and Japan). The bilateral exchange
rates are weighted by export trade weights.
b.
The nominal exchange rate steady state is estimated using the Purchasing Power Parity (PPP) condition, which links the depreciation of the nominal exchange rate to the inflation differential
between South Africa and abroad. Given that the real effective exchange rate (REER) depreciation is zero at steady state, the nominal exchange rate will therefore depreciate by 2.5% per year
in steady state, reflecting the inflation (target) differential between domestic (4.5%) and foreign (2.0%) inflation.
c.
The REER is the NEER deflated by the consumer price differential between South Africa and the trade-weighted CPI of the eurozone, the US and Japan.
d.
The real exchange rate gap signifies the extent to which the real exchange rate deviates from its estimated equilibrium level. A positive gap shows an overvaluation of the currency, and vice versa.
e.
The repo rate at the end of the period refers to the average for the last quarter of the year. The nominal repo rate steady state is calculated as the sum of South Africa’s inflation target (4.5%)
and the steady state neutral real interest rate (2.5%).
f.
The neutral real interest rate (NRIR) is the policy rate minus inflation, which prevails when the economy is fully in balance, with inflation at target and output at potential. The policy stance
is measured as either tight or loose based on whether actual rates are above or below this neutral rate respectively. The steady state NRIR is calculated as the sum of the respective steady
states for the G3 NRIR (0.5%), South Africa’s risk premium (2.0%) and the change in the REER (0.0%). Before the steady state is reached, it is possible for the REER equilibrium to appreciate
or depreciate, so this value can have a non-zero value over the medium term. It is nonetheless always zero in the long run.
g.
The steady state is the long-run value in the model. While model equilibriums can have different values over the medium term, as conditions change, all equilibriums eventually reach a steady
state, where they stabilise.
h.
The forecast of the current account balance is obtained from the SARB’s Core Macroeconometric Model.
i.
Shaded areas indicate the forecasts of the Monetary Policy Committee.
j.
The figures in brackets represent the previous forecasts of the Monetary Policy Committee.
Selected forecast results (quarterly)
Year-on-year percentage change

Steady
state

1. Headline inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


2. Core inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Notes
a. Shaded areas indicate the forecasts of the Monetary Policy Committee.
b. The figures in brackets represent the previous forecasts of the Monetary Policy Committee.

APRIL 2024
Statement of the Monetary Policy Committee
27 March 2024
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

Load-shedding in 2023 was worse than in other years both in terms of the number of days and in terms of the volume of gigawatts shed.

The average growth rate for 1980–2022 was 2.1% based on the International Monetary Fund’s World Economic Outlook database.

According to the inflation expectations survey conducted by the Bureau for Economic Research.
Since the start of the year, we have seen persistent global
inflation pressures. Headline inflation rates are generally
lower than they were a year ago, but underlying inflation
is still elevated. Goods inflation has declined significantly,
as supply shocks wear off, but there is evidence of
stronger inflation in services across a range of economies.
Meanwhile, unemployment rates remain low, especially in
the United States.
In these circumstances, major global central banks are
expected to cut rates at a slower pace, and to start cutting
at a later stage. A few emerging market central banks have
been reducing rates already, but these economies had the
largest hikes previously, and their interest rates are now well
above inflation. The Monetary Policy Committee (MPC) also
noted that the Bank of Japan has moved its policy rate into
positive territory, increasing interest rates for the first time
since 2007.
Turning to South Africa, the economy performed worse than
expected in the fourth quarter of last year, expanding by just
0.1%. Growth for 2023 as a whole was 0.6%.
The main reason for this bad performance was supplyside problems. Electricity load-shedding was worse than
in previous years.1 Port and rail problems also emerged as
binding constraints on output.
Our forecasts indicate a modest growth acceleration from this
year as these supply-side constraints relax. In particular, we
expect that the load-shedding burden will ease somewhat.
And while we estimate that electricity shortages took
1.5 percentage points off gross domestic product (GDP) last
year, we think this will moderate to 0.6 percentage points this
year and 0.2 percentage points in 2025.
Overall, we see growth at 1.2% this year, improving to 1.6%
by 2026. These projections are better than the 2023 outcome
but below longer-run averages, which are around 2%.2
The risks to this growth forecast appear balanced.
Turning to inflation, South Africa had a more gradual
acceleration in inflation than many of its peer countries, with
a lower peak, after COVID-19. However, the return to target
has been slow.
The most recent inflation numbers show yet another delay
on the way back to our 4.5% objective, with headline up
to 5.6% in February. This is nearer to the top of our target
range than to the midpoint. Core inflation also rose, to 5.0%.
This rise in core inflation was due to an acceleration in
services, led by the medical aid component. Services
inflation is now at its highest since 2019. This suggests that
South Africa is joining the global trend of services, rather
than goods, becoming a major source of inflation.
We still see headline inflation heading back to 4.5%.
However, given the extra inflation pressure, headline now
reaches the target midpoint only at the end of 2025, later
than previously expected. As a result, the policy rate in our
baseline forecast also starts normalising later.
In assessing this forecast, the MPC noted a range of risks.
Inflation expectations have moderated in the latest survey.
This is welcome, but the two-years-ahead expectations are
still in the top half of our target range.3 Expectations are
projected to ease towards our 4.5% objective as inflation
slows, but we have little margin to absorb shocks as long as
expectations are high.
Regarding food prices, we are at a difficult juncture. Last
year, food inflation hit its highest levels since 2008. Food
inflation has now slowed. But this is a critical time in the
growing season, and it has been unusually hot and dry,
which may cause food inflation to pick up again.
Considering the exchange rate, the rand has been trading
somewhat weaker than we expected at our last MPC
meeting. This is partly due to interest rates in the major
advanced economies staying high for longer. The local
currency is also under pressure from weakening terms of
trade. Furthermore, investors see significant near-term
domestic uncertainty. We view the exchange rate as
undervalued.
On balance, the various risks to the inflation forecast are
skewed to the upside.
Against this backdrop, the MPC decided to hold the
repurchase rate (repo rate) unchanged at 8.25%. The
decision was unanimous.

APRIL 2024
At this level of rates, the policy stance is considered
restrictive, consistent with the inflation outlook and the need
to address elevated inflation expectations.
The inflation and repo rate projections from the Quarterly
Projection Model remain a broad policy guide, changing
from meeting to meeting in response to new data.
The MPC’s decisions will continue to be data-dependent
and sensitive to the balance of risks to the inflation outlook.
Stabilising inflation at the midpoint of the target band
(4.5%) would improve the economic outlook and reduce
borrowing costs.
Finally, we reiterate the views of the MPC on additional
measures that would improve economic conditions.
These include achieving a more prudent public-debt level,
improving the functioning of network industries, lowering
administered price inflation, and keeping real wage growth
in line with productivity gains.
Per cent
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Repurchase rate forecast (March 2024)*

90%

60%

30%

Repo rate

* The uncertainty bands for the repo rate are based on historical
forecasting experience and stochastic simulations in the QPM. The
bands are symmetric and therefore do not reflect any assessment
of upside or downside risk.
Source: SARB

APRIL 2024
Summary of assumptions: Monetary Policy Committee
meeting on 27 March 2024*
1. Foreign sector assumptions
Actual
Forecast

1. Real GDP growth in South Africa’s

2. Output gap in South Africa’s major trading-partner countries


3. Change in international commodity prices in US$

2. Domestic sector assumptions
Actual
Forecast


Notes
a.
Shaded areas indicate forecast assumptions.
b.
The figures in brackets represent the previous assumptions of the Monetary Policy Committee.
*
For an explanation of foreign sector assumptions and domestic sector assumptions, see pages 54 and 55.

APRIL 2024
Summary of selected forecast results: Monetary Policy Committee meeting
on 27 March 2024
Selected forecast results (quarterly)
Year-on-year percentage change

Steady
state

1. Headline inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


2. Core inflation
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


3. Food CPI
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


4. Fuel CPI
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4


5. Electricity CPI
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Notes
a. Shaded areas indicate the forecasts of the Monetary Policy Committee.
b. The figures in brackets represent the previous forecasts of the Monetary Policy Committee.

APRIL 2024
Selected forecast results (annual)
Actual
Forecast
Steady
state


Notes
a.
The nominal effective exchange rate (NEER) is based on the bilateral exchange rates of South Africa’s three largest trading partners (the eurozone, the US and Japan). The bilateral exchange
rates are weighted by export trade weights.
b.
The nominal exchange rate steady state is estimated using the Purchasing Power Parity (PPP) condition, which links the depreciation of the nominal exchange rate to the inflation differential
between South Africa and abroad. Given that the real effective exchange rate (REER) depreciation is zero at steady state, the nominal exchange rate will therefore depreciate by 2.5% per year
in steady state, reflecting the inflation (target) differential between domestic (4.5%) and foreign (2.0%) inflation.
c.
The REER is the NEER deflated by the consumer price differential between South Africa and the trade-weighted CPI of the eurozone, the US and Japan.
d.
The real exchange rate gap signifies the extent to which the real exchange rate deviates from its estimated equilibrium level. A positive gap shows an overvaluation of the currency, and vice versa.
e.
The repo rate at the end of the period refers to the average for the last quarter of the year. The nominal repo rate steady state is calculated as the sum of South Africa’s inflation target (4.5%)
and the steady state neutral real interest rate (2.5%).
f.
The neutral real interest rate (NRIR) is the policy rate minus inflation, which prevails when the economy is fully in balance, with inflation at target and output at potential. The policy stance
is measured as either tight or loose based on whether actual rates are above or below this neutral rate respectively. The steady state NRIR is calculated as the sum of the respective steady
states for the G3 NRIR (0.5%), South Africa’s risk premium (2.0%) and the change in the REER (0.0%). Before the steady state is reached, it is possible for the REER equilibrium to appreciate
or depreciate, so this value can have a non-zero value over the medium term. It is nonetheless always zero in the long run.
g.
The steady state is the long-run value in the model. While model equilibriums can have different values over the medium term, as conditions change, all equilibriums eventually reach a steady
state, where they stabilise.
h.
The forecast of the current account balance is obtained from the SARB’s Core Macroeconometric Model.
i.
Shaded areas indicate the forecasts of the Monetary Policy Committee.
j.
The figures in brackets represent the previous forecasts of the Monetary Policy Committee.

APRIL 2024
Foreign sector assumptions
1. Trading-partner gross domestic product (GDP) growth
is broadly determined using the Global Projection Model
(GPM), which is adjusted to aggregate the GDP growth
rates of South Africa’s major trading partners on a tradeweighted basis. Individual projections are done for the
six largest trading partners, namely the eurozone, the
United States (US), the United Kingdom (UK), Japan,
China and India. Other countries considered, although
with small weights, are Brazil, Mexico and Russia. The
remaining trading partners are grouped into the ‘Rest
of Countries’ bloc. Since sub-Saharan Africa is also a
major trading region for South Africa (but does not have
a bloc in the GPM), it is modelled separately and then
combined with the aggregate of all the countries in the
GPM to make up total trading-partner growth.
2. As with GDP growth, the output gap is determined using
the GPM and is adjusted in a similar way. The output gap
is driven by a combination of country-specific domestic
factors, external factors and financial-real linkages
(beyond interest rate and exchange rate effects).
Domestic factors include expectations of future demand
and medium-term interest rates. External factors include
exchange rate impacts on demand, direct spillovers
through trade with trading-partner countries and
foreign demand.
3. The commodity price index is a weighted aggregate price
index of the major South African export commodities.
4. The Brent crude oil price is expressed in US dollars
per barrel. The assumption incorporates supply and
demand dynamics as well as oil inventories (of all grades).
The assumption is also informed by projections from the
US Energy Information Administration, the Organization
of
the
Petroleum
Exporting
Countries
(OPEC)
and Reuters.
5. World food prices is the composite food price index
of the United Nations (UN) Food and Agriculture
Organization (FAO) in US dollars. It is weighted using
average export shares and represents the monthly
change in the international prices of a basket of five
food commodity price indices (cereals, vegetable oil,
dairy, meat and sugar). World food price prospects
incorporate selected global institution forecasts for
food prices and imbalances from the anticipated trend
in international food supplies relative to expected food
demand pressures.
6. International consumer prices are also broadly
determined using the GPM. The index is an aggregate
of the consumer price indices of the eurozone, the US
and Japan, weighted by their relative trade shares.
Consumer prices are determined for each of these
economies by accounting for inflation expectations,
demand pressures and pass-through from changes in
the relevant exchange rate. Other institutional forecasts
for international consumer prices are also considered.
7. International policy interest rates are again broadly
determined using the GPM. Interest rates are a weighted
average of the policy rates of the eurozone, the US and
Japan. They are individually determined by a ‘Taylortype’ monetary policy rule. The communications of the
relevant central banks and other institutional forecasts
are also considered.

APRIL 2024
Domestic sector assumptions
1. The electricity price is an administered price measured
at the municipal level with a weight of 3.63% in the
headline consumer price index (CPI) basket. Electricity
price adjustments generally take place in the months of
July and August of each year, and the assumed pace of
increase over the forecast period reflects the multi-year
price determination agreement between Eskom and the
National Energy Regulator of South Africa (NERSA), with a
slight adjustment for measurement at the municipal level.
2. Fuel taxes and levies are the total domestic taxes and
costs included in the price of fuel paid at the pump. They
include the Road Accident Fund (RAF) levy, the fuel levy,
retail and wholesale margins, the slate levy and other minor
levies. The two major taxes, which are set by the Minister
of Finance in the annual national budget, are the RAF levy
and the fuel levy. The income generated by the RAF levy is
utilised to compensate third-party victims of motor vehicle
accidents, while the fuel levy is used to provide funding for
road infrastructure.
3. Potential growth is derived from the South African
Reserve Bank’s (SARB) semi-structural potential output
model. The measurement accounts for the impact of the
financial cycle on real economic activity, and introduces
economic structure via the relationship between potential
output and capacity utilisation in the manufacturing sector
(SARB Working Paper Series No. WP/18/02).
4. The midpoint of the inflation target range is 4.5%.
The official inflation target range is 3–6%.
5. The neutral real interest rate (NRIR) is the interest rate
consistent with stable inflation and output in line with
the economy’s potential. This variable is the basis for
judging whether a given policy stance is expansionary,
contractionary or neutral.

APRIL 2024
Glossary
Advanced economies: Advanced economies are countries
with high gross domestic product (GDP) per capita,
diversified exports and close integration into the global
financial system.
Balance of payments: This is a record of transactions
between the home country and the rest of the world over a
specific period of time. It includes the current and financial
accounts. See also ‘Current account’ below.
Brent crude: Brent crude is a light and sweet blend of oil from
five different fields in the North Sea. The price of Brent crude
is one of the benchmark oil prices in international markets.
Budget deficit: A budget deficit indicates the extent to which
government expenditure exceeds government revenue.
Business and consumer confidence: These are economic
indicators that measure the level of optimism about
the economy and its prospects among business managers
and consumers.
Commodities: Commodities can refer to energy, agriculture,
metals and minerals. Major South African-produced
commodities include platinum and gold.
Consumer price index (CPI): The CPI provides an indication
of aggregate price changes in the domestic economy.
The index is calculated using a number of categories
forming a representative set of goods and services bought
by consumers.
Core inflation: Core generally refers to underlying
inflation, excluding the volatile elements (e.g. food
and
energy
prices).
The
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.
The monetary base (M0): Comprises total banknotes and
coin in issue and in circulation outside of the South African
Reserve Bank (SARB), net of issuance and removal from
circulation, plus banks’ required cash reserves as well as
their excess cash reserves and other deposits at the SARB
in rand
Monetary policy normalisation: This refers to the unwinding
of an unusually accommodative monetary policy. It could
also mean adjusting the economy’s policy rate towards its
real neutral policy rate.
Neutral real interest rate (NRIR): The NRIR is the level at
which the real interest rate will settle once the output gap is
closed and inflation is stable.
Nominal effective exchange rate (NEER): The NEER
is an index that expresses the value of a country’s
currency relative to a basket of other (trading-partner)
currencies. An increase (decrease) in the NEER indicates
a strengthening (weakening) of the domestic currency with
respect to the selected basket of currencies. The weighted
average exchange rate of the rand is calculated against
20 currencies. The weights of the five major currencies are
as follows: the euro (30.68%), the Chinese yuan (24.53%),
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.

APRIL 2024
Output gap/potential growth: Potential growth is the rate
of GDP growth that could theoretically be achieved if all the
productive assets in the economy were employed in a stable
inflation environment. The output gap is the difference between
actual growth and potential growth, which accumulates over
time. If this is negative, then the economy is viewed to be
underperforming and demand pressures on inflation are low.
If the output gap is positive, the economy is viewed to be
overheating and demand pressures are inflationary.
Policy rate: A policy rate is the interest rate used by a central
bank to implement monetary policy.
Productivity: Productivity indicates the amount of goods and
services produced in relation to the resources utilised in the
form of labour and capital.
Real effective exchange rate (REER): The REER is the NEER
adjusted for inflation differentials between South Africa and its
main trading partners. See also ‘Nominal effective exchange
rate’ above.
Repurchase (repo) rate: This is the policy rate that is set
by the Monetary Policy Committee (MPC). It is the rate that
commercial banks pay to borrow money from the SARB.
Real repo rate: This is the nominal repo rate, as set by the
MPC, adjusted for expected inflation.
Terms of trade: This refers to the ratio of export prices to
import prices.
Unit labour cost (ULC): A ULC is the labour cost to produce
one ‘unit’ of output. This is calculated as the total wages
and salaries in the non-agricultural sector divided by the real
value added at basic prices in the non-agricultural sector of
the economy.

APRIL 2024
Abbreviations
AI
artificial intelligence
BER
Bureau for Economic Research
BFP
basic fuel price
BIS
Bank for International Settlements
BoE
Bank of England
CODI
Corporation for Deposit Insurance
COICOP
classification of individual consumption by purpose
CNY
Chinese Yuan
CPI
consumer price index
EAF
energy availability factor
ECB
European Central Bank
EN
Economic Note
ETP
electronic trading platform
FAO
Food and Agriculture Organization (United Nations)
Fed
Federal Reserve (United States)
FOMC
Federal Open Market Committee
FRA
forward rate agreement
FX
foreign exchange
G3
Group of Three
GDP
gross domestic product
GFCF
gross fixed capital formation
GFECRA
Gold and Foreign Exchange Contingency Reserve Account
GPM
Global projection model
GW
gigawatt
Haver
Haver analytics
IMF
International Monetary Fund
Jibar
Johannesburg Interbank Average Rate
M0
base money
MPC
Monetary Policy Committee (South African Reserve Bank)
MPR
Monetary Policy Review
MTBPS
Medium Term Budget Policy Statement
MW
megawatt
NAB
non-alcoholic beverages
NEER
nominal effective exchange rate
NERSA
National Energy Regulator of South Africa
NWU
North-West University
OBEN
Occasional Bulletin of Economic Notes
OPEC
Organization of the Petroleum Exporting Countries
PCE
Personal consumption expenditure
PCCI
persistent and common component of inflation
PGM
platinum group metal
PMI
Purchasing Managers’ Index
PPP
purchasing power parity

APRIL 2024
RAF
Road Accident Fund
REER
real effective exchange rate
repo (rate)
repurchase (rate)
RMSE
root mean square error
r-star
long-run real neutral interest rate
SA
South Africa
SAGB
South African government bond
SALDRU
Southern Africa Labour and Development Research Unit
SARB
South African Reserve Bank
SIT (account)
services, income and transfer (account)
S&P
Standard & Poor’s
SSA
sub-Saharan Africa
Stats SA
Statistics South Africa
TEU
twenty-foot equivalent unit
UK
United Kingdom
ULC
unit labour cost
UN
United Nations
US
United States
WEO
World Economic Outlook
WGBI
World Government Bond Index
WP
Working Paper
YTD
year to date