MONETARY POLICY
REVIEW
OCTOBER 2024
OCTOBER 2024
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ISSN: 1609-3194
Printed by the South African Reserve Bank
OCTOBER 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
OCTOBER 2024
Contents
The clearing storm

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

OCTOBER 2024
The clearing storm
Executive summary and
overview of the policy stance
With the pandemic surge receding, inflation is slowly returning
to targets and central banks have begun normalising policy
with gradual cuts in interest rates. Central banks are likely to
move cautiously, however, with still sticky services and wage
inflation, ongoing uncertainty about the available policy space
and with an eye on possible price shocks on the horizon. South
Africa’s inflation has also softened, with the August print falling
just below the target midpoint, while risks to the forecast have
become more balanced. While headline inflation in the near
term will benefit from lower fuel prices, it is expected to remain
around 4.5% over the forecast period. With this backdrop, the
Monetary Policy Committee (MPC) lowered the repurchase
(repo) rate by 25 basis points in September 2024 to 8.0%. The
economy is projected to expand by 1.1% this year, rising to
1.8% in 2026. The upgraded forecast is premised on the muchimproved electricity supply, alongside a better-functioning
logistics sector and lower inflation and interest rates.
Still riding the swells
From the peak rate of 8.7% reached in 2022, global inflation
continues to moderate and should get to about 5.4% this year.1
In some countries, inflation has closed in on policy targets,
allowing central banks to start easing interest rates. In others,
inflation remains high. Services price inflation has remained
sticky in many economies and wages elevated in some, keeping
core inflation higher than is consistent with central banks’
targets. A range of prices, from fuel to food, remain unstable,
contributing to significant volatility in monthly inflation outcomes
that has tended to increase forecast uncertainties and add
inertia to disinflation. Geopolitical threats to supply chains and
trade remain an ongoing concern, while high debt levels and
climate change further cloud the medium-term horizon.
Over much of the past year, the path for global inflation remained
unclear. Food and fuel inflation eventually decelerated and
pulled headline lower. Services price increases and other parts
of core inflation, however, proved resistant to slowing for much
of the period, putting into question central bank policy settings.
Even though policy settings were restrictive when viewed in the
context of recent history, and recessions were feared, inflation
outcomes suggested different interpretations. For much of the
past year, uncertainty prevailed about whether policy settings
were sufficient to return inflation back to target on credible
time frames.
1 The inflation and growth figures reported in this section are,
unless indicated otherwise, from the International Monetary Fund’s
(IMF) World Economic Outlook (WEO) Update of July 2024.

Percentage change over six months*
Global headline inflation momentum
Source: Haver

* Seasonally adjusted and annualised

Percentage points
Core inflation in advanced economies*
US
UK
Eurozone
Japan
Source: Haver
* Deviation from policy target
as at August 2024

Percentage change over 12 months

2022 2023 2024
2020 2021
Headline inflation
Sources: Stats SA and SARB

3–6% inflation target band
Midpoint

OCTOBER 2024
Part of the challenge in understanding the mixed inflation
trajectory lies in the surprising resilience of the global economy.
High savings by households and firms during the pandemic
and aggressive fiscal expansions supported a sustained
consumption of goods and then services, which drove up
prices sequentially. While central banks responded to the
higher inflation with restrictive policy, some prices, such as
for food, fuel and commodities, were already easing. China’s
weaker growth helped to dampen commodity prices and
reduced imported goods inflation, providing further support to
economic activity in much of the world. In many places, fiscal
policy remained highly expansionary.
Structural factors also played a role in keeping core inflation
elevated, and some may continue to do so. Services
consumption has stayed surprisingly strong even as the
pandemic faded further into the background, as labour
markets have remained tight. An important measure of
growth and labour demand in advanced economies – the
number of job vacancies per unemployed person – stayed high
for much of the year in most major economies but has recently
fallen towards pre-pandemic levels.
Nonetheless, the longer-term outlook remains unclear. Despite
robust levels of migration working to loosen labour markets
in advanced economies, ageing populations and lower
participation rates suggest the opposite. The large fiscal
deficits and public borrowing of the pandemic have also been
prolonged, in part due to new demands for investment in
energy infrastructure but also other demands for support to
households. Much of this fiscal stimulus has worked against
monetary policy efforts to lower inflation faster and may
continue to provide support for it. More broadly, escalating
demand for capital is likely to keep neutral interest rate levels
well above those prevailing in the pre-pandemic era.
Such countervailing pressures and ensuing uncertainties instil
caution in policymaking, a feature of central banking that is
likely to remain even as disinflation continues.
The greater part of the global disinflation we have seen over the
past year has occurred in advanced economies and central
banks have become more confident about its trajectory.
Accordingly, except for Japan, major global central banks
have begun normalising policy. To date, the European Central
Bank (ECB) and Bank of England (BoE) have lowered rates by
a cumulative 50 basis points and 25 basis points respectively.
The ECB was the first to cut in June this year, followed by the
BoE in August. The United States (US) Federal Reserve (Fed)
conducted its first rate cut of 50 basis points in September.
Ratio

Job vacancies per unemployed person
Source: Haver

US
UK
Eurozone

Percentage change
Global inflation
Source: IMF

World
Advanced
economies
Emerging market
and developing
economies

Per cent

Policy rates in selected advanced economies
Source: Central banks
-1

US
UK
Eurozone

OCTOBER 2024
Emerging markets have experienced similar challenges of
stubborn (core) inflation and volatile monthly inflation data.
Where easing in policy rates has been possible, as in some
Latin American economies, adverse inflation outcomes along
with fiscal and political challenges have forced some of them to
pause and, in the case of Brazil, to hike again, despite still high
real policy rates. Emerging markets, however, should benefit
from the shift in advanced economies towards greater easing.
South Africa, for instance, which we discuss in greater depth
in the next section, has seen a strengthening of the rand which
has put significant downward pressure on inflation.
From a global perspective, monetary policy has been restrictive
enough to get inflation sustainably lower, but the policy space
available may be unusually limited. Estimates of neutral
rates may adjust higher (Box 3), while policy missteps risk
putting disinflation in doubt or even cause inflation reversals.
In summary, global inflation should continue to ease, but
uncertainties about its trajectory as well as the effectiveness of
policy will remain high in an era of significant change.
Last year, the world economy grew by 3.3%, aided by relatively
strong demand and expansionary fiscal policies in advanced
economies. However, activity levels varied across countries,
with the US strongly outperforming its advanced economy
peers, a pattern that continued into 2024. Nonetheless, that
diverging growth trend has narrowed this year as activity
improves in some of the laggards. Large emerging economies
also exhibited diverse growth rates, with India growing robustly
and China’s output moderating. Because China’s economic
output is more commodity-intensive than any other economy,
its activity slowdown has depressed commodity prices,
impacting growth in commodity-exporting emerging markets
such as South Africa.2
Risks to global growth appear balanced. While interest rate
cuts should provide a boost to consumption and investment,
protectionist measures and geopolitical fragmentation
will likely continue to weigh on global trade.3 The policy
uncertainty associated with political developments in various
regions of the world also present risks to global growth and
inflation. China’s recent efforts to support growth may carry
upside surprises to global growth, in part through stronger
commodity prices.
Equally, while the expected fiscal consolidations that are
required to lower debt levels may reduce growth (and
inflation) in the near term, lower inflation supports easier credit
conditions, providing impetus to growth over the medium
term. Over the longer term, sustainable growth will need to
be achieved with a better balance between public and private
demand for scarce savings.
2 See J Baffes and P Nagle, ‘Commodity markets: Evolution,
challenges, and policies’, Washington DC: World Bank, 2022.
3 Organisation for Economic Co-operation and Development (OECD),
Economic Outlook, Interim Report September 2024: Turning the corner,
Paris: OECD Publishing, 2024.
Percentage change over 12 months

Core inflation in selected emerging markets


South Africa

Mexico

Brazil

India


Chile

China


Source: Haver
-2

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 Mar 2024
South Africa’s trading parters Sep 2024
Per cent
Contributions to trading-partner growth*

Source: SARB
* Weights in brackets


OCTOBER 2024
Taking these and other considerations into account, the South
African Reserve Bank (SARB) projects moderate tradingpartner growth of 2.7% this year (from 3.0% the year before),
rising to 3.1% in 2026. The somewhat muted global growth
should help keep demand pressures contained, supporting
the ongoing disinflation.
Domestic economic developments
In contrast to global inflation, the domestic inflation narrative has
shifted markedly in recent months. After rising and remaining
sticky in the upper half of the target band for much of the review
period, headline inflation dropped in July and August 2024,
printing slightly below the midpoint of the 3–6% target band
in August. While the turn in headline inflation reflects a range
of factors including the moderation in Brent crude oil prices,
the recent marked strengthening of the rand has underpinned
the broad-based disinflation in fuel and goods prices.
Underlying inflation pressures, which remained elevated
above the midpoint over the past year, have also eased. Core
inflation, the SARB’s primary indicator of underlying inflation,
has since April 2024 moved closer to the midpoint, and dipped
below it in July (4.3%) and further to 4.1% in August. Softer
core inflation reflects the marked moderation in core goods
inflation on the back of a strong rand benefitting from, among
other factors, the rise in the real policy rate. Services inflation
remained closer to the target midpoint over the review period,
moving within a narrow range. Although components such as
miscellaneous services have tended to pull services inflation
higher, this was more than offset by the subdued housing and
utilities component.
Meanwhile, inflation expectations held by firms, unions and
financial analysts have eased appreciably this year, with
two-years-ahead expectations at 4.8% in the third quarter.
The recent subdued headline inflation outcomes, if sustained,
should induce further declines in inflation expectations. In
turn, lower inflation expectations should help to mute nominal
wage growth and ultimately services inflation, although the
risk of higher-than-projected wage increases due to backward
indexation remains.
With both core goods and services inflation expected to
ease further, core inflation is forecast to undershoot the
target midpoint this year, averaging 4.4% (4.8% in 2023) and
to remain below it for the remainder of the forecast horizon.
Headline inflation is expected to average 4.6% (5.1% in the
March forecast) in 2024 and to undershoot the target midpoint
from the third quarter of this year through to the end of the
forecast period.
Over the next three quarters headline inflation is expected to
print in the bottom half of the 3–6% target band, averaging
3.7%. These mainly reflect strong fuel deflation and markedly
lower food inflation. As these outcomes are driven mainly by


Services

Core goods

Core
Percentage change over four quarters

Core inflation components*
Sources: Stats SA and SARB

* Dotted lines indicate forecasts
Midpoint

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

Per cent

Two-years-ahead inflation expectations:
All participants*


Actual

Mar 2024

Sep 2024

Sources: BER and SARB

3–6% inflation target band
Midpoint
* Dotted lines indicate forecasts

OCTOBER 2024
supply side factors, including exchange rate strength, policy
focus will be on second-round effects – an approach taken
symmetrically – for upside or downside shocks.
The apparent progress on the inflation front has not been
mirrored on the output dimension, yet. Growth weakened
sharply over the past year, largely due to supply constraints.
Load-shedding and logistical challenges, along with policy
uncertainty, weighed heavily on economic activity and
sentiment, depressing business credit appetite and household
spending. Gross domestic product (GDP) expanded at
a modest rate of 0.7% in 2023, down from 1.9% in 2022,
worsening South Africa’s growth gap vis-à-vis peer emerging
markets for whom growth averaged 4.4% in the past year.4
On a quarterly basis, the domestic economy recorded no
growth in the first quarter of this year, followed by a modest
rebound of 0.4% in the second quarter. The SARB projects
near-term growth of 0.6% in the third and fourth quarters as
household spending gets a boost from declining inflation and
the two-pot retirement reform (Box 5) respectively.
Looking forward, South Africa’s growth performance is
forecast to improve. Private investment in renewable energy,
increased maintenance by Eskom and transmission system
development, along with reforms in ports and rail, should
further reduce energy and logistical constraints. As the
economy’s productive potential improves and inflation eases,
so too will corporate and household balance sheets, further
improving sentiment and investment beyond the network
sectors. The economy is expected to grow by 1.1% this year,
rising to 1.8% by 2026. That growth remains well below the
estimated long-run, steady-state level of 2.5%, however, is in
large part because the prolonged supply-side constraints have
eroded the economy’s productive capacity (Box 4). Strong
growth in investment will be needed to make up for that loss of
capacity and jobs.
Despite the fading commodity revenue windfall and muted
growth, fiscal consolidation is progressing. Considerable
success was achieved in the 2023/24 fiscal year as National
Treasury delivered the first primary surplus in 15 years.
Meanwhile, year-to-date revenue and expenditure trends,
where the main budget revenue and expenditure are up by
19.1% and 4.3% respectively, raise the prospect of another
primary surplus this financial year. The boost in revenue,
however, came mostly from the drawdown of the Gold and
Foreign Exchange Contingency Reserve Account (GFECRA).
This, along with improved sentiment following the formation of
a Government of National Unity (GNU) after the May elections,
has helped compress the risk premium and the yield curve.
The long end of the curve has shifted lower by about 200 basis
points since April 2024.
4 IMF, WEO Update, July 2024.


Emerging market and developing economies

South Africa
Percentage change

Real GDP growth: South Africa and emerging
market and developing economies
Sources: IMF and Stats SA


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
quarterly projection model.
Sources: Stats SA and SARB

-1

Per cent
South Africa’s risk premium*
Sources: JPMorgan and SARB

Actual

Mar 2024

Sep 2024

Equilibrium risk premium
* Dotted lines indicate forecasts

OCTOBER 2024
Overview of the policy stance
South Africa’s inflation experience has been more muted
than in much of the rest of the world, with monetary policy
helping to shape those better outcomes. The start to policy
normalisation in late November 2021 and the gradual move to
reduce monetary accommodation helped to slow the rise in
inflation at a time when pent-up demand was high and supply
was severely constrained. Policy, however, remained broadly
accommodative until the 50 basis point hike in May 2023.
Since then, monetary policy has been moderately restrictive,
dampening growth in aggregate demand and helping to
keep it in balance with constrained supply. This, along
with the favourable unwinding of food and fuel prices, saw
inflation soften and the inflation forecast improve significantly,
especially compared to earlier in the year. For two of the three
MPC meetings covered in this Monetary Policy Review (MPR)
(May and July 2024), the policy rate was unchanged.
Risk assessments by the MPC shifted across meetings,
from being balanced in the May meeting (but with a higher
inflation forecast trajectory) to being tilted to the upside in the
July meeting, given a downwardly revised baseline quarterly
projection model (QPM) inflation forecast profile. Common
global risks included slower-than-expected global disinflation
and geopolitical tensions. Domestic risks included elevated
inflation expectations and lingering concerns about food and
administered prices, particularly the price of electricity.5
Nonetheless, the inflation forecast improved significantly
over this period and inflation expectations continued to ease
(Box 1). In the March 2024 forecast headline inflation was seen
averaging 5.1% this year and declining to 4.6% in 2025 and
4.5% in 2026. The May meeting projected headline inflation
of 5.1% in 2024 and 4.5% in 2025. The July meeting forecast
headline inflation of 4.9% in 2024 and 4.4% in 2025. With the
baseline inflation projection easing, the QPM signaled rate
cuts at each of the three meetings covered in this review. After
weighing the risks to the inflation outlook, however, the MPC
kept rates unchanged in the May and July MPC meetings.
The general improvement in the forecasts over the review
period brought forward the point at which headline inflation was
expected to reach the target midpoint and, assuming no new
shocks, remain around that level. The QPM baseline forecast
in the May MPC meeting had headline inflation converging to
the target midpoint from 2025, but this was revised forward
in the July MPC meeting to the fourth quarter of this year.
5 The quarterly projection model (QPM) baseline projection is risk-neutral,
while scenarios are provided that may generate additional implications
for inflation and interest rates. The Monetary Policy Committee (MPC)
considers the scenarios and other factors, global and domestic,
that exhibit upside or downside risks and that are then set out in the
statement relative to the baseline (Box 2). Often risks that feature in
scenarios end up as part of the baseline in subsequent forecasts.


Per cent
Real repo rate gap and inflation deviation
from target band midpoint

Sources: Stats SA and SARB
Forecast


Inflation (deviation from target)

Real repo rate gap
Per cent

QPM-implied repo rate versus actual*
Source: SARB

* Dotted lines indicate forecasts

Actual

May 2024

Jul 2024

Sep 2024

Percentage change over four quarters

Headline inflation forecasts*
Sources: Stats SA and SARB

* Dotted lines indicate forecasts

Actual

May 2024

Jul 2024

Sep 2024

OCTOBER 2024
The September forecast brought the convergence date
further forward, to the third quarter of this year, and provided
greater confidence about the near-term inflation trajectory.
These revisions reflected progressively better outcomes (and
projections) for all the components of headline inflation, except
for electricity.
The September forecast showed headline inflation averaging
4.6% this year and undershooting the target over the medium
term, while the MPC assessed inflation risks to be broadly
balanced. This, along with the more muted baseline profile
for inflation, prompted the MPC to lower the repo rate at the
September meeting by 25 basis points, bringing the policy rate
down to 8.0%. The decision moved the policy rate closer to the
path projected by the QPM.6
Despite the lowering of the repo rate by 25 basis points, policy
is still moderately restrictive, with the real repo rate gap – a
measure of the policy stance – averaging 1.6% this year. This
measure of the policy stance then declines sharply to 0.3%
next year and -0.1% in 2026.
Conclusion
The continued moderation in global headline inflation over the
past six months, along with signs of cooling labour markets,
suggests that tight monetary policy is helping to soften demand,
despite stickiness in some services inflation components. This
has given central banks greater confidence that disinflation will
continue, assuming no new major shocks. Accordingly, global
central banks have entered an easing cycle, with the Fed joining
the other major central banks this past September. Central
banks, however, are taking a cautious, data-dependent, risk
management approach, with modest cuts followed by pauses
to assess the appropriateness of the policy stance.
The SARB’s MPC lowered the repo rate by 25 basis points at
the September 2024 meeting. Policy decisions will continue to
be guided by incoming data as the MPC seeks to protect the
purchasing power of the rand in the interest of balanced and
sustainable economic growth. Other actions that can support
stronger output growth include achieving a prudent public
debt level, further progress in the implementation of structural
reforms and the better alignment of administered prices growth
with the expected low-inflation environment.
6 The QPM suggested a rate cut of 50 basis points in the May MPC
forecast. With the MPC keeping the repo rate on hold, the QPM
again suggested a cut of 50 basis points in the July MPC forecast
and, for similar reasons, a cut of similar magnitude for the fourth
quarter of this year (September and November meetings together).
Risk assessment
MPC inflation risk assessment
Source: SARB

Upside risks
Balanced risks
Downside risks
Per cent

Repo rate and headline inflation
Sources: Stats SA and SARB

Nominal repo rate

Headline inflation

OCTOBER 2024
Box 1 Floating away?
1 See International Monetary Fund, ‘Chapter 2: Managing Expectations:
Inflation and Monetary Policy’, International Monetary Fund World Economic
Outlook, Washington DC: International Monetary Fund, October 2023.
2 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.
3 Ten-year rolling regressions of two-years-ahead inflation expectations on
contemporaneous inflation outcomes are run. The sensitivity measure is
obtained as one minus the coefficient estimate of contemporaneous inflation
from said regression. See K Lansing and F Nucera, ‘Inflation Expectations,
the Phillips Curve, and Stock Prices’, Federal Reserve Bank of San
Francisco Economic Letters, 2023–24, San Francisco: Federal Reserve
Bank of San Francisco, December 2023.
Inflation-targeting central banks set monetary policy to ensure that,
in the absence of permanent shocks, inflation stabilises around the
target over the medium term. A key variable in policy setting is the
way in which economic agents (firms, households and the government)
react to temporary and permanent shocks to inflation and output. If
these agents believe the long-run forecast of the central bank (i.e.
the announced inflation target), then their expectations are said to
be ‘anchored’ and their behaviour (output and pricing decisions) will
be consistent with the inflation target. This, in turn, implies that the
central bank can look past temporary supply shocks, keeping interest
rates more stable and reducing the short-term cost of achieving lower
inflation.1 When inflation expectations are not at the central bank’s
announced target, higher policy credibility is associated with their faster
and less costly convergence to target.2
Very large and persistent shocks such as the pandemic and its
aftermath, however, can unmoor expectations. As inflation surged in
2022–23, South Africa’s two-years-ahead inflation expectations rose
markedly and drifted away from the preferred 4.5% midpoint of the
SARB’s inflation target band (Box 8, April 2023 MPR). A key policy
question is whether inflation expectations have re-anchored.
Inflation expectations are considered better anchored if they cluster
around the central bank’s announced target and are relatively insensitive
to recent and current inflation outcomes.
Data show that the degree of anchoring improved between 2017 and
2019. This followed the South African Reserve Bank’s (SARB) express
communication about its preference for inflation to settle closer to the
midpoint of the 3–6% target band. However, the complex nature of the
pandemic, the policy responses to it, the unfolding developments in
supply chains and commodities prices and how economies responded
to the end of the pandemic made inflation expectations much more
sensitive to current developments.3
More recently, with inflation falling from the highs reached in 2022,
inflation expectations have also eased but remain above the target
midpoint. Nonetheless, underlying analytics give reason for optimism.
In particular, improved anchoring is suggested by the clustering of
two-years-ahead expectations of business survey respondents. The
distribution has shifted leftwards and compressed with its centre closer
to the 4.5% midpoint, indicating more agreement among respondents.
The SARB policy actions, consistency in communications and
credibility may have helped to reverse the de-anchoring of inflation
expectations, minimising any costs of sustainably achieving the inflation
target over the medium term. Nevertheless, the task of firmly anchoring
expectations is not yet complete.
Per cent
2000 2003

2021 2024
Two-years-ahead inflation expectations:
All participants
Sources: BER and SARB

3–6% inflation target band
Midpoint


Financial analysts

Business

Reduced sensitivity to new inflation data;
‘better anchoring’
Sensitivity measure

Sensitivity of two-years-ahead inflation
expectations to new inflation data
Sources: BER and own calculations based
on Lansing and Nucera (2023)


Increased sensitivity to new inflation data;
‘weaker anchoring’
Share of respondents
Distribution of two-years-ahead business
inflation expectations
Sources: BER and SARB

3.1 to 4
4.1 to 5
5.1 to 6
6.1 to 7
≤3
>7

2024*
Inflation rate (per cent)
* Until 2024Q3

OCTOBER 2024
Box 2 Inflation risk: listing or more balanced?
1 Other risks considered by the Monetary Policy Committee (MPC) in recent
meetings include sharply higher oil prices, rand depreciation, escalation
in geopolitical tensions in the Middle East and upside/downside budget
scenarios.
Monetary policy requires the forecasting of inflation and assessing
the risk that it surprises higher or lower over the short, medium and
longer run. These assessments are often aided by forecast scenarios,
alternatives to the baseline that reflect what happens when specified
risks materialise. At the September Monetary Policy Committee (MPC)
meeting, the MPC assessed risks to the baseline inflation forecast to
be balanced – equal probabilities that inflation would turn out higher or
lower than in the baseline. This box presents the scenarios considered
by the MPC at the September 2024 meeting.1
One scenario featured the risk of higher inflation, represented by faster
electricity price inflation, stronger wage growth and rising rental inflation.
The downside risk scenario considered a marked strengthening of
the rand.


Actual

Baseline

Upside surprise

Downside surprise

Percentage change over four quarters

Headline inflation*
Sources: Stats SA and SARB

3–6% inflation target band
Midpoint
* Dotted lines indicate forecasts
Per cent

Nominal repo rate*
Source: SARB

* Dotted lines indicate forecasts


Actual

Baseline

Upside surprise

Downside surprise

Steady state

Scenario considerations
Baseline Scenario
Variable*

* Wage and rental shocks start in 2024Q4, and the electricity shock begins in
2025Q3. The table shows their annual impact in 2025.
** Nominal appreciation over the forecast period
Scenario results

Inflation

Nominal
repo
(end of
period)


OCTOBER 2024
Global economy:
Steady as she goes
The world economy is projected to expand by 3.2% this year
and by 3.3% in 2025, broadly unchanged from the pace set in
2023. Across the world’s major economies, the US appears
to be headed for a soft landing, underpinned by still solid
household spending and labour market, while economic
performance in the eurozone and China has generally
disappointed. Services sectors continue to drive much of the
growth in global economic activity, but this has come at a cost
of stickier services inflation. Despite this stickiness, headline
inflation has continued to recede on the back of much softer
goods price inflation – providing room for central banks to
initiate easing cycles. At this time, the future pace and depth of
rate cuts remain uncertain.
Steady, modest growth
The global economy continues to expand at a steady yet
modest pace. Manufacturing output has been broadly stable,
while services sectors continue to grow. While this pattern
of economic activity primarily reflects global consumption
still shifting away from manufactured goods, the loss of
momentum in private fixed investment, particularly in advanced
economies, has also played a role. An expected turnaround
in the manufacturing sector has yet to materialise. The global
Purchasing Managers’ Index (PMI) for manufacturing has been
stuck around the neutral 50 index point level for most of this
year, while new orders received by global manufacturers have
remained in contractionary territory. Major manufacturers, such
as Germany and China, have been especially hard hit by this
stagnation. Tight lending standards of most loan categories
across major advanced economies, alongside high interest
rates, have additionally contributed to lower credit demand,
further denting consumption of durable goods.
More service-oriented economies alternately, continue to do
well. The US economy has remained resilient and continues
to outperform its advanced economy peers. Spending by US
households remains strong, underpinned by growth in real
personal income and a still firm labour market. The recent
50 basis point reduction in the federal funds rate should provide
additional impetus to economic activity. The US economy is
forecast to expand by 2.6% this year before slowing to 1.9% in
2025.7 These projected growth rates contrast sharply with the
narrative that the US economy will see a hard landing next year.
Instead, a soft landing appears more likely.
Outside of the US, the growth performance among advanced
economies is mixed. Activity in the eurozone remains subdued
due to weak domestic demand and muted manufacturing
activity. However, recent rate cuts should support household
7 The inflation and growth figures reported in this section are, unless
indicated otherwise, from the IMF’s WEO Update of July 2024.
Percentage change over four quarters (both scales)
Real GDP growth in major economies
Source: Haver

US

UK

Eurozone

China (right-hand scale)

Q2
Q1
Q4
Q3
Q2
Q1

Index

Global PMI
Sources: JPMorgan and S&P Global
Neutral level

Services

Manufacturing

Percentage change over four quarters

US personal income and expenditure
Source: Bureau of Economic Analysis

Personal income

Personal consumption expenditure
-10
-5

OCTOBER 2024
Percentage change
Real GDP growth projections for advanced
economies*
Source: IMF

US
Eurozone
Japan

2010–19 average growth rate

* Shaded bars indicate forecasts
Percentage change
Real GDP growth projections for emerging
markets*
Source: IMF
India
China
Brazil
Russia
South Africa

2010–19 average growth rate
-2

* Shaded bars indicate forecasts

consumption, prompting expectations of a mild expansion
of 0.9% for the eurozone this year. Following sharply weaker
activity levels at the start of this year, momentum in the
Japanese economy remains low. The economy is projected to
grow by 0.7% in 2024, down from a robust growth rate of 1.9%
in the previous year. On the other hand, real GDP in the United
Kingdom (UK) has been recovering steadily amid firm activity in
the services sector. Falling inflation and slightly lower borrowing
costs should support economic activity, boosting growth to
0.7% this year, up from 0.1% in the previous year and rising to
1.5% in 2025.
Across emerging and developing markets, Asia’s economies
have been an important source of growth for the world
economy. The Indian economy has shown significant
resilience and is expected to expand by 7.0% this year and by
6.5% in 2025, underpinned by strong household consumption
spending. Economic growth in China, however, has weakened
in recent quarters despite a firm start to the year. Growth in
the Chinese economy is expected to slow to 5.0% this year
from 5.2% in 2023, as the weakness in the property sector
persists and credit demand remains muted. However, the
recent stimuli by the People’s Bank of China (PBoC) as well
as expectations of additional fiscal measures should support
output expansion. In Latin American countries, economic
activity remains robust, with output largely at potential. This is
despite restrictive monetary policy stances where real policy
rates are well above long-term averages. Across sub-Saharan
Africa, economic activity is expected to expand by 3.7% this
year, largely on account of stronger growth in Nigeria (3.1%),
while South Africa, at 1.1% growth this year, continues to drag
the region’s average lower.
Disinflation on track but
uncertainty remains
Global disinflation has progressed over the past two years
despite occasional setbacks. After averaging 6.8% in 2023,
global inflation is projected to soften to 5.4% this year and
further to 4.4% in 2025, still well above the 2.5% average of
the 2010–19 period. Disinflation has been driven primarily
by goods, with prices of food, energy and some imported
goods falling in most advanced economies. Meanwhile, global
services inflation has remained relatively sticky, in part due
to tight labour markets and reflecting an important feedback
loop from wages to prices. Since services price disinflation is
slow, uncertainty about the return of inflation back to target
remains elevated.8 For instance, in the US and eurozone, some
components of services inflation, including rents, health and
recreational services, remain well above the 2.0% inflation
target and in some cases are even accelerating.9
8 See P Amatyakul, D Igan and M Lombardi, ‘Sectoral price dynamics in
the last mile of post-COVID-19 disinflation’, BIS Quarterly Review, Basel:
Bank for International Settlements, March 2024.
9 In August 2024, transport inflation was 9.0% in the US while insurance
inflation was 9.0% in the eurozone.
Percentage change over 12 months

Goods and services inflation
Sources: Haver and SARB
-2

EM services

EM goods

AE services

AE goods

OCTOBER 2024
While the global trend has been towards disinflation, there are
some exceptions. Deflationary risks have persisted in China
where inflation has remained close to 0% over the past two
years as the prolonged slump in the housing market and
job uncertainty continue to weigh on consumer spending.
Meanwhile, a tight labour market and supply shortages due to
the ongoing sanctions have reignited inflation in Russia, while
strong economic activity and a depreciated currency have
contributed to the recent upside surprise in Brazil’s inflation.
Across the world’s major advanced economies, however, labour
market conditions have so far been mixed – cooling somewhat
in the US but remaining relatively tight in the eurozone and UK. In
the US, where quit rates soared early in the pandemic recovery
as demand for labour outpaced its supply, the Beveridge curve
(that links vacancies to unemployment) shifted to the right and
steepened, implying a stronger bargaining power for workers.
However, the US Beveridge curve has now returned closer to
the levels it was before the pandemic while unit labour costs
(ULCs) were only up by 0.5% year on year in the second
quarter of this year. Meanwhile, high vacancy rates and lower
unemployment in the eurozone have fanned labour shortages,
inducing firms to hoard labour. This pattern of high vacancy
rates and low unemployment is also observed in the UK. Tight
labour markets, together with labour hoarding practices, could
add to wage pressures while reducing productivity, raising
firms’ ULCs. Nevertheless, growth in negotiated wages in the
eurozone slowed to 3.5% year on year in the second quarter,
down from 4.7% in the previous quarter.
Labour markets also remain relatively tight in many emerging
markets, with markedly low unemployment rates compared
with the pre-pandemic period, especially in Mexico, the
Philippines and Czech Republic. Encouragingly, evidence is
building that labour markets have started to cool across major
economies, but this could be a slow grind amid still strong
services sector activity.
While expectations are for inflation to return to the 2.0%
target in major advanced economies by the end of 2025,
risks remain. Elevated services inflation amid tight labour
markets and relatively high wage inflation could upend the
disinflationary process. Equally, global shipping rates have
risen since the start of the year, which could potentially feed
into renewed supply pressures and thus goods inflation. The
good news for major central banks, however, is that longer-term
inflation expectations have remained generally well anchored,
suggesting that monetary policy credibility remains intact.
Global easing cycle broadens
Global monetary policy is in an easing cycle even if it is not
synchronised across countries and regions. The US Fed
joined the cycle in September, following rate cuts in several
advanced economies, including Canada, the eurozone, UK
and Switzerland. Japan, however, has been a key exception
as it continues to raise rates moderately from its previously
accommodative setting. Some Latin American countries have


Jan 2010 – Mar 2020

Aug 2020 – present

Current
Job openings rate (per cent)
US Beveridge curve
Unemployment rate (per cent)
Source: Bureau of Labor Statistics

Pre-COVID-19 average (2000–19)
*33.5
*26.7
Per cent
Unemployment rates

Sources: Haver and SARB
Emerging markets
Advanced
economies

Current
US
UK
Eurozone
Japan
Brazil
Chile
Colombia
Mexico
Peru
China
India
Malaysia
Thailand
Philippines
Hungary
Poland
Romania
Russia
South Africa*
Czech Republic
Percentage change
Headline inflation forecasts for advanced
economies and emerging markets*
Source: IMF

Advanced economies
Emerging markets

2010–19 average inflation

* Shaded bars indicate forecasts

OCTOBER 2024
Percentage of central banks

Policy rate changes by advanced economy
central banks*
* Sample includes 16 advanced economy central banks
Sources: Haver and SARB

Easing
Tightening
Unchanged
Percentage of central banks

Policy rate changes by emerging market
central banks*

Easing
Tightening
Unchanged
* Sample includes 25 emerging market central banks
Sources: Haver and SARB
been easing interest rates since the second quarter of 2023,
while a few central banks in emerging Asia have started cutting
interest rates.
However, central banks have exhibited caution in adjusting rates
due to idiosyncratic inflation dynamics, with cuts often followed
by pauses. Some early interest rate cutters such as Brazil had
to reverse course, raising rates again in September as inflation
expectations jumped higher. Rising inflation expectations
reflect concerns that despite relatively high interest rates, loose
fiscal policy is inconsistent with more resilient growth and tight
labour markets.
The outlook for interest rates is for a gradual easing in policy
rates, with data dependency a central theme. The extent of
policy easing, however, is complicated by the uncertainty
surrounding estimates of the neutral rate. Across most
advanced economies, current real rates are above long-run
real rate averages. Compared with the neutral rates estimated
during the pandemic, real rate levels suggest restrictive
monetary policy conditions. Sticky inflation, however, has
prompted new estimates that suggest that neutral rates have
risen since the COVID-19 pandemic and are unlikely to return
to the levels seen prior to the pandemic (Box 3).
Not without risks
Overall, risks to the global growth and inflation outlook
appear balanced. Downside risks to growth stem from a
sharp slowdown or recession in the US, along with possible
debt defaults given the elevated global debt level. Upside
risks to inflation emanate from a lack of progress on services
disinflation as well as an escalation of geopolitical tensions that
could sharply increase the cost of imported goods along the
supply chain. These considerations, along with the prospect of
a higher r-star, raise the likelihood that interest rates will remain
higher than they were before the pandemic.

OCTOBER 2024
Box 3 What is the speed limit?
As the post-pandemic inflation surge moderates, policy space opens
for central banks to ease interest rates. Much like a speed limit that
is dependent on road conditions, the r-star, or neutral real interest
rate, provides guidance on the pace of tightening or easing.1 Given an
expected inflation rate, is the policy rate adding to or taking away from
future inflation? R-star also serves as the point at which, in steady
state, any policy normalisation should end.
A challenge lies in estimating the neutral rate with precision, especially
when major shocks and structural forces, as experienced in recent
years, cause large changes in economic relationships, patterns of
activity and/or prompt major policy shifts. In the decade after the
global financial crisis, global neutral real rates were estimated to have
declined to around 0% from around 4% in the 1990s (see Box 2 in
the April 2022 MPR).
In the wake of the pandemic, however, the massive increase in
demand on global saving and sharply higher inflation have generated
new estimates that show that r-star has risen.2 A higher r-star suggests
the need for higher policy rates to re-anchor inflation in the wake of the
kinds of shocks that drove it up.
An additional complication with r-star presents itself to small, more
open economies such as South Africa, as these are, by definition,
more affected by external economic shocks, especially those
emanating from large global economies and key trading partners.
Relative interest rates and growth rates influence flows of capital,
while relative price and income shocks impact on trade in goods and
services. When small, open economies run financial deficits and need
to draw on foreign savings, these interdependencies become even
more important.3
The South African Reserve Bank’s (SARB) running estimate of the
neutral rate for South Africa reflects a mix of global neutral rates
alongside a premium to compensate for country risk.4 South Africa’s
neutral real rate declined between 2000 and 2010, reflecting a
moderating global r-star and a declining risk premium on the back
of the marked improvement in the country’s fiscal position (fiscal
surpluses in 2005/06 and a debt-to-GDP ratio falling to below 30%
by 2010). However, this decline was reversed in the aftermath of
Per cent
South Africa’s neutral real interest rate
Source: SARB

Risk premium

G3 neutral real rate

Neutral real rate

-1

Per cent

US neutral real interest rate estimates
-1

Source: BIS

Lubik-Matthes

Hördahl-Tristani

Holston-Laubach-Williams
1 R-star is the real interest rate that is consistent with the economy
being at full employment and inflation being stable around the target.
The rise in short-term r-star is influenced by supply shocks as well
as market participants’ assessment of short-term interest rates.
Longer-term r-star is driven by slower-changing variables such as
demographics and technical progress.
2 See G Benigno, B Hofmann, G N Barrau and D Sandri, ‘Quo vadis, r*?
The natural rate of interest after the pandemic’, BIS 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.
3 See C Loewald, ‘Making sense of neutral real interest rates,’ South
African Reserve Bank Occasional Bulletin of Economic Notes:
OBEN/18/01, Pretoria: South African Reserve Bank, February 2018.
Global r-star is proxied by the weighted r-star for the Group of Three
(G3) economies, namely, the United States, eurozone and Japan.
4 See, L Kuhn, F Ruch and R Steinbach, ‘Reaching for the (r)-stars:
Estimating South Africa’s neutral real interest rate’, South African
Reserve Bank Working Paper No. WP/19/01, Pretoria: South African
Reserve Bank, February 2019.

OCTOBER 2024
the global financial crisis as the global neutral rate started to rise and
South Africa’s debt position deteriorated. For over a decade, global
r-star had a moderating influence on the domestic r-star, before
reversing course.
How much room to ease?
Despite the challenges of estimating neutral rates, central banks look
to benchmark a ‘real interest rate gap’ by taking their estimates and
comparing them to an ex-ante real policy rate.5 Comparative real
rate gaps are shown in the adjacent chart, helping to illustrate how
domestic factors shape rates expected by the markets. The rates
gap is larger in countries that are subject to idiosyncratic shocks or
constraints. Russia, for instance, is exposed to price pressures linked
to sanctions, while Mexico’s inflation is, alongside a large fiscal deficit,
highly sensitive to rates differentials with the United States (US). In
South Africa and India, by contrast, smaller gaps reflect less sensitivity
to global factors and better fundamentals.6
Overall, easing cycles are expected to vary across countries and,
given data-dependency, rate paths remain uncertain, presenting
risks of heightened volatility in financial markets. What seems likely,
however, is that easing cycles this time will be shorter and shallower
than in previous episodes, leaving rates higher than they were before
the pandemic.
5 The ex-ante policy rate is the current policy rate less the three-quartersahead (end-2025) expected consumer price inflation, as per the
Bloomberg median forecast.
6 For instance, the small real interest rate gap in South Africa and India
reflects that interest rates were hiked by relatively less compared with
peers and that the one-year-ahead expected inflation is generally higher,
reflecting a higher inflation target relative to peers.
Basis points
Interest rate expectations


* The real rate gap is computed as neutral real rate less real
policy rate.
Sources: BIS, central banks and SARB
Emerging markets
Advanced
economies

Expected nominal rate change

(by 2025Q4)

Real rate gap*
Malaysia
Thailand
India
Korea
Indonesia
Poland
Brazil
South Africa
Philippines
Czech Republic
Chile
Hungary
Mexico
Russia
Australia
UK
US
Eurozone
Colombia

OCTOBER 2024
Financial markets:
less turbulence
Apart from a spike in volatility in August 2024, global
financial markets remained relatively calm over the past
six months, reflecting clearer inflation outcomes and
less uncertainty about future interest rate paths. With
the world’s major central banks finally in an easing cycle,
equities trended higher and major yield curves shifted
lower. Risk assets generally performed well, aided by the
dollar’s weakening on expectations of large cumulative Fed
rate cuts. In South Africa, the post-election period was
characterised by a broad-based rally in financial markets.
The rand appreciated strongly and has maintained a firmer
bias, supporting the disinflation process. Meanwhile, the
local currency bond curve has shifted lower, with yields on
longer-dated bonds declining the most. This positive
sentiment, alongside cooling inflation and the 25 basis
point cut at the September MPC meeting, has led markets
to price in further rate cuts over the next few quarters.
Expectations realign
Following significant volatility in 2023 and earlier this year,
financial markets have calmed over the past six months as
market and rate-setter expectations have broadly aligned. All
the major global central banks, except for the Bank of Japan
(BoJ), are now in an easing cycle. The ECB, the first among
the major central banks to cut rates, moved in June this year
with a 25 basis point reduction, followed by another cut of
a similar magnitude in September, while the BoE trimmed
by 25 basis point in August and paused in September.10
The Fed finally joined the ECB and BoE in September when
it reduced the federal funds rate by 50 basis points. With
the rate adjustments largely priced in, markets exhibited
little volatility. Financial markets also responded positively
to moves at the end of September by the PBoC to initiate
stimulus measures and announce a cut to its seven-day
reverse repo to prop up the economy.
Market-implied rate expectations suggest the Fed will cut
rates by a further cumulative 200 basis points by December
2025, with around 80 basis points thereof expected to be
cut before the end of this year. The easing of policy by the
Fed reflects stronger conviction that inflation will continue to
moderate, as shown by the September ‘dot-plot’ marking
the federal funds rate at about 4.4% by year-end, and 3.4%
by the end of 2025. For the ECB and BoE, rates are expected
to decline by around 150 basis points within a year.
10 By contrast, the Bank of Japan (BoJ) hiked interest rates for a second
time in July and further amended the parameters of its bond purchase
programme in a move to scale back some of its stimulus measures
that had lasted for more than a decade.

Chicago Board Options Exchange Volatility (equity)

Merrill Lynch Option Volatility Estimate

(bond, right-hand scale)

Index (both scales)

Volatility gauges
Source: Bloomberg
May
Jan
Sep

May
Jan
Sep
May
Jan
Sep

Federal funds rate projection (per cent)
Federal Open Market Committee 'dots'*
* Red dots denote the median of the 19 meeting participants

Source: US Fed

Financial conditions
Source: Bloomberg

UK

Eurozone

US


Index

Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Looser

OCTOBER 2024

US

Germany

UK

Basis points
-150
-100
-50

Two-year minus 10-year yield spreads
Source: Bloomberg

MSCI developed markets

MSCI emerging markets

Nikkei

Cumulative per cent
-10
-5

Jul
Sep
Mar
Jan
Equity returns
Source: Bloomberg

May
Feb
Apr
Jun
Aug

US dollar index (DXY)

Gold price (right-hand scale)

Index

US dollar and gold price

USD/oz


Source: Bloomberg
Financial conditions have loosened significantly, reflecting
eased pressures in money markets as well as debt and equity
markets.11 A shift lower in global policy rates has impacted
flow dynamics in financial (especially bond) markets. Yield
curves in the US, UK and Germany steepened, reflecting lower
short-term interest rates. In particular, the spread between the
10- and 2-year US yields, which had been trading in negative
territory for at least two years, turned positive as short-term
yields declined.
Major equity bourses rose strongly in response to recent policy
easing by the Fed and PBoC. Emerging market debt portfolio
flows have also strengthened compared with the previous
six months, notwithstanding the still elevated risks related to
geopolitical tensions. However, investors remain selective.
For instance, while South Africa’s bond yield curve has
shifted lower over the past six months, Brazil’s has shifted
upwards to reflect elevated inflation pressures and ongoing
fiscal concerns.
Volatility subsides but markets on edge
Despite the apparent calmness, recent events suggest that
markets remain on edge. Markets experienced an episode
of heightened volatility at the start of August following
the publication of disappointing US jobs market data that
triggered a spike in recession fears. Equity markets sold off,
with the impact exacerbated by the hawkishly-interpreted BoJ
commentary that led to the unwinding of yen-funded carry
trade positions. However, pullbacks were short-lived. Investors
repositioned portfolios rather than closing them entirely. Also,
economic data pointed to a US economy that was cooling
as opposed to one headed into recession, again dampening
market reactions.
Currency markets have also adjusted in response to the
increasing clarity about the trajectory for inflation, growth and
policy rates. With interest rates in the US expected to decrease,
the US dollar depreciated to lows last seen in the third quarter
of 2023. The weaker dollar has generally supported currencies
globally, with some exceptions and not without some currency
volatility. Emerging and advanced economies bucking the
trend of lower inflation have seen further currency weakness,
while other economies that are moving in the same direction
have seen stronger outcomes. The rand has made the best
of the weaker US dollar, being the third-best performing
emerging market currency after the Malaysian ringgit and Thai
baht over the past six months. The offshore Chinese yuan
also appreciated against the greenback to levels last seen in
May 2023. By contrast, Latin American currencies such as the
Mexican and Argentinian pesos and Brazilian real have come
under pressure given the sensitivity to US rate differentials for
the former and a mix of lower commodity prices and fiscal
concerns weighing on the latter two.
11 See also Federal Reserve Bank of Chicago, National Financial Conditions
Index (NFCI): Index Points to Looser Financial Conditions in Week Ending
September 20, Chicago: Federal Reserve Bank of Chicago, 2024.

OCTOBER 2024
Going forward, expectations are that most emerging market
central banks will lower interest rates further but by less
than the Fed, implying widening interest rate differentials. In
turn, these differentials should support further carry-trade
flows, propping up emerging market currencies.12 Markets,
nonetheless, will remain responsive to macroeconomic risks,
especially for economies with elevated debt levels. The focus
will remain on factors that could interfere with the directions
expected by investors, in particular the upcoming US elections
in November.
South African financial
market developments
The past six months saw a marked turnaround in the
performance of domestic financial assets. A combination of
improved global risk appetite and the unwinding of the political
risk premium embedded in local assets has buoyed domestic
financial markets. The rand outperformed most emerging
market currencies, appreciating by 8.8% since the time of the
previous MPR and by 5.9% on a year-to-date basis.13
Yields on local currency government-issued instruments
declined across the term structure, with those in the belly
and long-end of the bond curve declining by nearly 200 basis
points. The spread between the 3-year and 30-year South
African government bonds fell below 300 basis points for
the first time since June 2023, implying a flatter yield curve
and a moderation in borrowing costs across the economy. A
narrower country risk premium and lower inflation expectations
renewed demand for rand assets by non-resident investors,
further pushing yields down. Maintaining progress on inflation
and growth as well as reducing the borrowing needs of the
public sector, could cheapen financing further, given the still
low level of non-resident investment in the country (currently
holding a low 24.6% of outstanding government bonds). On
a year-to-date basis, non-resident investors have bought a
cumulative (net) total of R36.9 billion worth of South African
government bonds, compared with net sales of R8.8 billion in
the same period last year.
South African equities have also outperformed both developed
markets and emerging markets since April. Despite heightened
local market volatility in the period leading up to the election,
South African equities rallied following the formation of the
GNU. The JSE All Share Index rose 13.2% from April to reach
a record high of 84 553 index points. South African markets
performed even better in dollar terms. The MSCI South Africa
Index has increased by 13.5% since April compared with gains
12 The Institute of International Finance noted in its September Capital Flows
Tracker report that lower US rates can reduce the cost of borrowing in
dollars, which in turn may ease funding conditions for emerging markets
and further support investment flows.
13 Emerging market currencies have on aggregate depreciated by 3.9% on a
year-to-date basis but performance has been almost flat since the last
MPR.


EMFX (inverted)

USD/ZAR

Index: 1 January = 100

Mar
Apr
Feb
Jan
South African rand has decoupled from emerging
market currency basket
Source: Bloomberg
May
Jun
Jul
Aug
Sep

1 May 2024

Current

Per cent

8yr
9yr
7yr
3yr
South African government bond yield curve
Source: Bloomberg
12yr 14yr 17yr 18yr 21yr 25yr

MSCI South Africa

MSCI developed markets

MSCI emerging markets

Index: 1 May 2024 = 100

MSCI Equity Index
Source: Bloomberg
May
Jun
Jul
Aug
Sep

OCTOBER 2024
of 5.5% for the broad MSCI Emerging Market (EM) benchmark
and 6.9% for the broad MSCI Developed Market (DM) Index.
However, JSE sector performance was mixed, with the
financial and banking indices up by 29% and 31% respectively
(record highs) while the resources and mining indices declined
by 2.2% and 4.0% respectively, with industrials in between.
The government issued two new bonds on 10 September
2024, namely the R2033 and R2038, maturing on 31 March
2033 and 31 March 2038 respectively. These bonds have
lowered the average maturity of the bond curve from 16.8
years to 14.9 years while smoothing out the redemption profile.
Both were offered at R1.25 billion and they cleared close to the
interpolated market rates.14
Regarding market operations, the implementation of the new
GFECRA framework, along with the transfer of the funds to
National Treasury, resulted in the surplus liquidity level doubling
to R160 billion over the review period. With market conditions
improving generally, there were no distortions observed in
price formation in money markets and in the funding behaviour
of banks in the secured and unsecured interbank market.
Overnight call deposit rates for large corporate clients and
funding rates in the foreign exchange (FX) forward market have
been little changed.
Domestic policy rate expectations have evolved in a similar
fashion to those observed in offshore markets, where central
banks have either cut or are expected to cut interest rates.
In South Africa, policy rate expectations implied from forward
rate agreements (FRAs) indicate one more repo rate cut of
25 basis points for 2024 following the cut at the September
2024 MPC meeting. This is a noticeable shift in expectations
since the previous MPR, but not out of line with changes in
South Africa’s macroeconomic outlook.
14 Interpolation is achieved by using other established bonds yields that are
in sequence with the unknown bond. It is used to estimate the potential
yield of a security.
-100
-50

Basis points
Liquidity position and short-term rates
* 20-day moving average
Sources: Bloomberg and SARB

-20

Overnight rates spread to repo*
Liquidity position (right-hand scale)

R billions
Per cent
South Africa's forward rate agreement curve
Sources: Bloomberg and SARB

1x4
2x5
3x6
4x7
5x8
6x9
Number
7x10 8x11 9x12
Number of cuts (25 bps, right-hand scale)
End of May 2024
End of June 2024
Current


OCTOBER 2024
Real economy: smoother sailing?
The domestic economy grew by 0.5% year on year in the
first half of this year. Household spending and government
consumption both supported growth while investment
contracted. The high prevalence of load-shedding in the first
quarter and logistical bottlenecks constrained economic
activity greatly. Going forward, output is expected to expand at
a progressively increasing pace as the economy’s productive
potential gradually lifts. The much improved electricity supply,
declining inflation and interest rates as well as the pension
withdrawals are among the factors supporting growth from
the second half of this year. Real GDP growth is projected to
average 1.1% this year up from 0.7% in the previous year, rising
to 1.8% by the end of the forecast period. Further progress in
the implementation of structural reforms, alongside sustaining
the financing gains explored in the previous chapter, would
continue to help improve the growth trajectory of the economy.
Recent economic developments
The South African economy grew by 0.5% year on year in the
first six months of 2024 as the weak growth momentum from
the past year carried over into the current year.15 Electricity
supply inadequacies, along with logistical bottlenecks, were
a binding constraint over the past year, severely limiting
economic activity. While electricity supply has registered a
remarkable improvement from the second quarter of this
year, with load-shedding suspended for over six months and
counting, this improvement is yet to fully reflect in economic
activity. The slow pick-up in activity reflects various factors,
including subdued sentiment by both households and firms,
high costs of production as well as weak domestic and
global demand.16 Other network industry challenges as well
as possible scarring caused by the prolonged constraints to
investment in productive capacity have also acted as drags to
activity expansion.
At the broad sector level, the strength of economic activity
was mixed. The primary sector contracted by 4.1%, reflecting
poor outcomes in the agricultural and mining sectors. The
El Niño-induced mid-summer drought reduced summer grains
and oilseed production, while mining production suffered from
logistics and falling prices.17
15 On a quarter-on-quarter basis, the economy recorded no growth in the
first quarter, followed by a modest rebound of 0.4% in the second quarter.
16 See Minerals Council South Africa, Mining Input Cost Inflation July
2024, Johannesburg: Minerals Council South Africa, 2024. See also
Minerals Council South Africa, Mining production declined again in
Q2 2024, Johannesburg: Minerals Council South Africa, 2024.
17 For a detailed discussion of the sectoral growth outcomes see
South African Reserve Bank, Quarterly Bulletin, September
2024; pp 6-11, Pretoria: South African Reserve Bank.
Percentage change
Real GDP growth*
Source: Stats SA


* 2024 shows annual growth for the first six months
Percentage change over one year
Contributions to real GDP growth in 2024H1
Source: Stats SA

Total
Other
Finance
Transport
Trade
Electricity
Manufacturing
Mining
Agriculture

Factor (per cent)
Eskom energy availability factor, planned and
unplanned outages
Sources: Eskom and SARB


Planned outages

Total unplanned outages

Energy availability factor

OCTOBER 2024
The secondary sector also subtracted from GDP growth over
the review period. This is despite all the subsectors growing in
the second quarter, with construction posting its first expansion
since the first quarter of 2023.
The tertiary sector, which grew by 1.4% year on year in the
first six months of this year, underpinned domestic economic
growth during the period. Finance, which accounts for nearly
a quarter of total GDP, was the bright spot, contributing
0.7 percentage points to growth on an annual basis. However,
the trade sector contracted – consistent with the muted
sentiment by new vehicle dealers and furniture retailers.18
Constrained real disposable income, along with elevated
borrowing costs during the first half of the year, mostly explains
the poor performance.
Despite a generally weak economic environment the
economy continued to create employment opportunities. Total
employment grew by 2.7% in the first half of this year compared
with the same period in 2023. The rise in employment despite
very muted GDP growth (0.5%) attests to South Africa’s high
growth elasticity of employment and suggests significant
scope to reduce unemployment should economic growth rise
appreciably on a sustained basis. The SARB expects further
gains in employment over the medium term as business
sentiment and economic growth benefit from the relaxation of
supply-side constraints.
Real household spending growth was subdued in the first six
months of this year, increasing by just 0.4% on an annual basis.
The outlook for household spending has improved, however,
with consumer confidence edging higher in both the second
and third quarters of this year. Indeed, consumer confidence
is at its highest in five years, indicating some optimism on the
back of easing inflation and the anticipation of further interest
rate relief.19
In contrast to the household sector, investment disappointed
hugely, with real total gross fixed capital formation (GFCF)
falling by 5.2% year on year in the first half of this year.
Indeed, investment spending by all organisations is still below
pre-pandemic levels. While private investment, the largest
component of GFCF, benefitted significantly from embedded
generation-related spending amid high levels of load-shedding
over the past two years, activity in this market has slowed
sharply. This likely reflects a slower approval process for
projects as well as improved grid stability. Meanwhile, public
sector capital spending continues to be weighed down by the
fragile positions of state-owned enterprises combined with
underspending on capital projects due to governance and
capacity challenges in government.
18 See Bureau for Economic Research, ABSA Manufacturing Survey
2024Q2: quarterly analysis of activity in retail, wholesale and motor
trade, Stellenbosch: Bureau for Economic Research, 2024.
19 See Bureau for Economic Research, FNB/BER Consumer Confidence
Index 2024Q3: quarterly analysis of consumer expectations,
Stellenbosch: Bureau for Economic Research, 2024.
Number of people (millions)
Labour market trends
Source: Stats SA, Quarterly Labour Force Survey

Not economically active

Unemployed

Employed

Working-age population

Labour force

Percentage change over a year
Growth in real household spending
Source: Stats SA
H1
H2
H1
H2
H1

Index: 2019 = 100

Real gross fixed capital formation

General government

Private sector

Public corporations

Private sector excluding

machinery and equipment

Total
Source: Stats SA

OCTOBER 2024
On the whole, while the economy expanded in the first six
months of the year, the growth rate remains low. However,
slightly better growth is expected in the second half of this year,
in line with improved private sector sentiment, sustained gains
in energy supply and stabilisation in ports and rail logistics.
Growth outlook
The SARB’s baseline forecast projects economic activity to
pick up over the medium term, underpinned by household
spending and investment. Various factors, including the
two-pot retirement reform and higher real salaries as
inflation moderates, should support household consumption
(Box 5). Meanwhile, capital spending on embedded generation
projects should remain supportive of GFCF over the forecast
period considering the large project pipeline in the budget
quotation phase. In addition, the somewhat improved terms of
trade should help stabilise output in mining and the economy
more broadly. The forecast, however, remains constrained
by a modest potential growth rate, a result of the erosion of
productive capacity over time reflected in very weak investment
growth rates (Box 4).
By contrast, the domestic economic environment has improved
significantly since the start of the second quarter of this year,
reflecting the sustained electricity supply as well as a steady
improvement in business sentiment and conditions following
the formation of a GNU. Load-shedding has been suspended
since 26 March this year, while the energy availability factor
(EAF) has risen closer to the desired 70% level. Electricity supply
should be further bolstered by new generating units (Koeberg
Unit 2 and Medupi Unit 4) that are expected to come online
over the coming months. Accordingly, the SARB has adjusted
its assumptions on load-shedding, which no longer detracts
from GDP growth over the medium term.20 The remaining
0.1 percentage point loss pencilled in for 2024 is in stark
contrast to the 0.6, 0.2 and 0.04 percentage point deductions
projected in the April 2024 MPR. On the logistics front, the
Logistics Crisis Committee is expected to stabilise port and
rail operations in the near term and to gradually improve their
performance in the outer years of the forecast horizon.21
Among the expenditure components, household consumption
spending is projected to remain the main driver of growth over
the medium term, underpinned by a strengthening household
balance sheet and improved sentiment. Real spending by
households is forecast to grow by 1.0% in 2024 and by 1.6%
in 2025 and 2026.
Although investment is projected to contract this year, it is
forecast to recover and contribute positively to growth in the
outer years of the forecast period. The recovery will mainly
be driven by increased capital spending on embedded
generation projects, where plants with a combined capacity
of approximately 10 gigawatt (GW) are expected to become
20 Some load-shedding is still expected but only at stages 1 and 2.
The SARB assumes minimal to no adverse growth impacts from
this level of load-shedding given the adaptations by industry.
21 See Department of Transport, Roadmap for the Freight Logistics System
in South Africa, Pretoria: Department of Transport, December 2023.
Household
consumption
Government
consumption
Total investment
Inventories
Percentage points
Contributions to real GDP growth


Sources: Stats SA and SARB
Forecast
* Percentage change
Net exports
Residual
GDP*

Apr 2023

Apr 2024
Private sector projects pipeline
Source: National Treasury
Connection phase
Budget quotation
phase
Gigawatts

Total
In progress
Connected
Total
In progress
Issued

OCTOBER 2024
commercially operational by the end of 2026.22 Moreover,
the large number of projects in the budget quotation phase
suggests that embedded generation will continue to underpin
investment well beyond the current forecast horizon. The pace
of investment, however, will be determined by grid access
which appears to be a binding constraint, particularly in the
provinces where most renewable generation is focused,
namely the Northern Cape, Eastern Cape and Western Cape.23
Growth over the medium term will also benefit from the slightly
improved terms of trade. South Africa’s commodity export
prices have deflated less than initially projected, while imports
are softer. The higher trend for the terms of trade is projected
to sustain over the forecast horizon.
Consistent with the improved economic environment, the
SARB revised its real GDP growth projection slightly higher to
1.6% (1.4% in the April MPR) and 1.8% (1.6%) in 2025 and 2026
respectively. Potential output is also revised higher to 1.4%
(1.2%) and 1.8% (1.6%) respectively over the same period.
Macro balances
Current account and its drivers
As the economy slowed in the first half of 2024, the current
account deficit narrowed to 1.2% of GDP from 1.8% of
GDP in the first half of 2023. Despite a larger deficit on the
services, income and transfers (SIT) account, the trade
surplus increased as the terms of trade stabilised and imports
remained muted. While the smaller current account deficit
is not expected to persist as economic growth and import
demand pick up, it should remain contained from modest
government consumption and stronger exports. The current
account deficit is now seen averaging 1.4% (2.1% in the April
MPR) this year, deteriorating to 2.7% (3.3%) by 2026.
Fiscal balances
Despite economic conditions remaining subdued, the first
five months of the 2024/25 fiscal year saw total main
budget revenue increase sharply by 19.1% year on year.
This improvement mostly reflected the GFECRA windfall of
R100 billion in July and August.24 Total gross tax collections,
however, rose by only 4.3% over the same period, mainly
driven by personal income tax (PIT) revenue, while fuel, valueadded tax (VAT) and corporate income tax (CIT) weighed down
total tax receipts.25
22 See National Treasury, Operation Vulindlela
Phase 1 Review, Pretoria: National Treasury, 2024.
23 See D Erasmus, ‘Pipeline for grid-connected renewable energy
project surges to 134GW’. BusinessLIVE, 25 August 2024.
24 Excluding the GFECRA distribution, main budget revenue
increased by only 3.6% in the first five months of 2024/25. See
National Treasury, ‘Statement of the national government’s
revenue, expenditure and borrowing’. Media Release,
30 September, Pretoria: National Treasury, 2024.
25 Personal income tax (PIT) was boosted by salary increases and
bonus payments, while the decline in corporate income tax
(CIT) likely reflects reduced mining sector profitability. A decline
in fuel receipts may reflect the reduced fuel consumption due
to the suspension of load-shedding. Finally, net value-added
tax (VAT) receipts were weighed down by higher refunds.


GDP

Potential
* Dotted line indicates forecast


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

Percentage of GDP
Current account balances


Source: SARB

Trade balance

Services, income and

transfers balance

Current account balance

* Dotted line indicates forecast

OCTOBER 2024
Government spending has remained relatively contained year
to date, consistent with the articulated fiscal consolidation
framework. The main budget expenditure rose by a modest
4.3% in the first five months of the current fiscal year, in part
reflecting reduced debt-service costs. The current revenue
and expenditure trends are consistent with the projected
primary surplus of 0.8% of GDP in 2024/25, which is double
that achieved in 2023/24.
However, the forecasted fiscal position is not without risks.
Financial challenges in critical state entities may warrant fiscal
support, while an above-inflation public sector wage increase
during the upcoming negotiations may add to spending
pressures.26 On the revenue side, low profitability in the mining
sector, along with slower economic growth, could drive
revenue shortfalls.
Conclusion
The marked improvement in grid stability, along with the
upbeat sentiment following the formation of the GNU, should
improve near-term economic outcomes. Activity should
be further buoyed by the recovery in demand on the back
of easing financial pressures on households and better
investment prospects. Accordingly, the economy is forecast to
expand by 1.1% in 2024, rising to 1.8% by 2026. These growth
projections, however, remain sensitive to further progress in
the implementation of structural reforms in the energy and
logistics sectors.

26 See BusinessTech, ‘Wage crisis looms as unions look for
double-digit salary hikes’. BusinessTech, 8 August 2024.

Year to date

2024 Budget estimate
Gross tax revenue growth
Source: National Treasury
Percentage change from previous year
-10
-5

-10
-5

PIT
CIT
VAT
Fuel
Other
Total
gross tax

2023/24

2024/25

2024 Budget estimate
Year-to-date budget balances
Source: National Treasury
R billions


Primary
Main

OCTOBER 2024
Box 4 Slow-fading scars
Large economic shocks raise or lower economic output and can shift
its rate of growth. In most cases output returns to its previous level and
trend growth rate once the shock dissipates. However, some shocks
can result in a permanent loss of economic output and a persistent
change in the growth rate.1 Have the large adverse shocks to hit the
South African economy in recent years – the COVID-19 pandemic,
electricity load-shedding, logistical bottlenecks, July 2021 unrest and
floods in KwaZulu-Natal in 2022 – scarred the economy and caused
permanent output losses that cannot be reversed?
Comparing actual output growth to the output that would have
prevailed had the shock not occurred suggests a significant loss and
a persistent decline in the economy’s productive potential.2 To return
to the counterfactual GDP level by the end of 2026, the economy
would need to grow at 3.2% annually on average – more than double
the 1.4% annual average growth rate currently projected.
The prospects for recovering from economic scarring would improve
with a sustained increase in investment. To date, total real gross fixed
capital formation remains well below its pre-COVID level and real net
investment has declined progressively over the past decade.3
The energy- and logistics-intensive sectors such as manufacturing
and mining, along with construction, show large and persistent real
output losses following a temporary rebound in 2021, remaining 9.0%,
6.0% and 26% below 2019 levels respectively. Manufacturing and
mining output will need to grow at an annual average rate of 3.2%
and 4.2% respectively to converge back to the counterfactual gross
value-added level over the forecast horizon.
The economy’s growth potential is projected to average 1.4% over
the forecast horizon against a steady-state potential growth rate of
2.5%. This compares poorly to South Africa’s emerging market trading
partners, whose potential growth estimates range between 2.0% and
6.5% over the same period.
1 See M Ball, ‘Long-term damage from the great recession in OECD
countries’, National Bureau of Economic Research Working Paper
20185, Cambridge: National Bureau of Economic Research, May 2014;
also see D Aikman, M Drehmann, M Juselius and X Xing, ‘The scarring
effects of deep contractions’, BIS Working Papers No. 1043, Basel:
Bank for International Settlements, October 2022, and L Fornaro and
M Wolf, ‘The scars of supply shocks: Implications for monetary policy’,
Journal of Monetary Economics 140 (supplement), 2023, pp s18–s36.
2 See M Larch, P Claeys and W van der Wielen, ‘The scarring effects of
major economic downturns: The role of fiscal policy and government
investment’, European Investment Bank Working Paper No. 2022/14,
Luxembourg: European Investment Bank, November 2022.
3 Real net investment is real total fixed investment less the depreciation
of existing capital stock.
Index: 2019 = 100
Real GDP*
* Dotted lines indicate forecasts
** GDP forecast from quarterly projection model
Sources: Stats SA and SARB

Counterfactual real GDP level
Back to counterfactual GDP
Real GDP**

Total

Mining (right-hand scale)


R billions (both scales)

Real net investment
-100
-50

Sources: Minerals Council South Africa and SARB
-30
-20
-10

Per cent
Potential GDP growth for emerging market
trading partners
*Sub-Saharan Africa
Sources: Stats SA and SARB

Long-term average (2011–18)

Forecast (2024–26)
South
Africa
Brazil
Mexico
SSA*
India
China

OCTOBER 2024
Box 5 Two-pot retirement reform: A shot in the arm
for household spending1
South Africa’s two-pot retirement savings reform allows employees to
withdraw a portion (one-third) of their pension savings without having to
resign first. From 1 September 2024, all retirement fund contributions
are split between three components (or ‘pots’); namely the (i) vested
component containing all accumulated retirement fund contributions
made until 31 August 2024;2 (ii) savings component containing
one-third of all net annual retirement contributions made after the
implementation date, including the once-off seed capital transfer from
the vested component;3 and (iii) retirement component containing the
remaining two-thirds of all net annual retirement contributions made
after the implementation date.4
In the short term, pension fund withdrawals are expected to boost
household real disposable income and thus consumption. Two
possible withdrawal scenarios are considered here.5 The high
withdrawal scenario assumes an additional pre-tax R100 billion will
be withdrawn in the fourth quarter of 2024, followed by withdrawals of
R40 billion per annum thereafter. In the moderate withdrawal scenario
(more likely), a pre-tax withdrawal of R40 billion in the fourth quarter of
2024 is assumed and R20 billion per annum thereafter.
The overall economic impact of the new pension reform is sensitive to
the size of the aggregate withdrawal. Under a high withdrawal scenario,
consumption increases significantly, rising by 0.8 and 1.8 percentage
points in 2024 and 2025 respectively before reverting to the baseline
(pre-two-pot retirement impact). Spurred by stronger household
spending, gross domestic product (GDP) growth edges higher by 0.3
and 0.7 percentage points respectively over the same periods, before
returning to the baseline in 2026. Unsurprisingly, in an environment of
constrained supply, the stronger demand lifts inflation, which rises by
0.2 and 0.3 percentage points in 2025 and 2026 respectively relative
to the baseline. The rise in inflation triggers a repurchase (repo) rate
response, with the repo rate increasing by 0.6 and 0.9 percentage
points in 2025 and 2026 respectively relative to the baseline to prevent
the inflation impulse from entrenching – impacting the cost of capital to
firms and borrowing costs for households.
A smaller increase in real household spending and GDP growth is
anticipated in the moderate withdrawal scenario, with GDP growth
only gaining 0.1 and 0.3 percentage points in 2024 and 2025
respectively.6 This scenario has more muted inflationary impacts, with
headline inflation ticking up by about 0.1 percentage points in both
2025 and 2026. Accordingly, the repo rate response is also muted, at
0.2 and 0.4 percentage points in 2025 and 2026 respectively.
In both scenarios the growth benefits are temporary while the inflation
impacts appear to linger. While the two-pot retirement reform provides
some short-term relief to distressed consumers, there are potential
downsides. First, should the withdrawal rates turn out to be much
higher, the rise in inflation would be substantial, potentially requiring a
commensurate policy response. Such an outcome would undermine
both household consumption and corporate investment in the near
to medium term, weighing on economic activity. Second, the higher
the withdrawal rates the less funds will be available at retirement age,
implying lower household consumption in the longer run. Relatedly,
the reduced total saving would, other things being equal, raise the
cost of capital and depress investment and ultimately the economy’s
productive capacity in the medium to long run.
Percentage change
Real GDP growth
Source: SARB


High withdrawal scenario

Moderate withdrawal

scenario

Percentage change
Inflation
Source: SARB


High withdrawal scenario

Moderate withdrawal scenario


1 See N Nesengani, R Ehlers, M Choonoo, A van Niekerk and T Janse
van Rensburg, ‘Likely near-term macroeconomic impact of the
implementation of the two-pot retirement saving system’, South African
Reserve Bank Special Occasional Bulletin of Economic Notes: Special
OBEN/24/02, Pretoria: South African Reserve Bank, August 2024.
2 In addition, a once-off seed capital transfer of 10% (capped at
R30 000) of an individual’s vested funds will be made to their savings
‘pot’ after the implementation date. The remaining funds stay invested,
with access to these funds still only permitted after retirement or upon
resignation, as per the current legislation.
3 Individuals will have access to funds in their savings ‘pot’ before
retirement and without having to resign, restricted to one withdrawal
per tax year and taxed at an individual’s marginal tax rate.
4 This pot prohibits access to these funds before retirement.
5 These withdrawals are additional to the R100 billion to R120 billion per
annum of pension withdrawals associated with resignations.
6 Real household spending increases by roughly 0.3 and 0.7 percentage
points in 2024 and 2025 respectively.

OCTOBER 2024
Price developments:
resetting the anchor
After remaining sticky in the 5–6% range for much of the
review period, headline inflation declined to 4.4% in August
2024. The softer reading marks the first time in over three
years that headline inflation fell below the target midpoint. With
oil prices lower and the rand strengthening, falling fuel prices
have played a critical role in pulling headline inflation down.
Other major components of the consumer price inflation (CPI)
basket have also slowed, including, importantly, food price
inflation and imported goods prices. The SARB now expects
headline inflation to average 4.6% this year, down from 5.1% in
the April MPR. Going forward, in the absence of upside risks
materialising, headline inflation is forecast to undershoot the
target midpoint through to 2026.
Oil prices and fuel inflation
Despite some volatility, particularly in the earlier months of the
review period, Brent crude oil prices have largely supported
domestic disinflation. After surging to US$90 per barrel in
April 2024 as heightened geopolitical tensions in the Middle
East increased supply constraint fears, oil prices moderated
as fears of a larger conflagration subsided. More recently,
downgrades to future global growth rates have caused
oil prices to soften further, averaging US$74 per barrel in
September 2024 despite OPEC+ members (members of the
Organization of the Petroleum Exporting Countries (OPEC)
plus other oil-producing countries) extending their voluntary
production cuts. Over the review period, Brent crude oil
prices have averaged US$84 per barrel. The beneficial
impact of softer oil prices has been accentuated by the recent
strengthening of the rand, resulting in successive months of
fuel price reductions and thus easing fuel price inflation.
According to the US Energy Information Administration (EIA),
the oil market is currently undersupplied by about a million
barrels a day. Voluntary production cuts by OPEC+ members
have been kept in place, providing support to prices despite
broadly weaker demand for oil, exemplified by modest growth
in China, the world’s largest oil importer.26 In the medium term,
supply and demand in the oil market is expected to remain
relatively tight, keeping the forecast assumption for Brent
crude oil prices at an average of US$83 per barrel this year
and US$81 per barrel over the medium term.
Administered price inflation
In line with historical trends, administered price inflation
continues to exert upward pressure on headline inflation.
Administered price inflation has averaged 7.6% year to date and
26 US Energy Information Administration, Short-term Energy Outlook (STEO),
Washington DC: US Energy Information Administration, September 2024.


Core

Non-core

Headline
Percentage change over four quarters

Headline inflation and its components*
Sources: Stats SA and SARB

* Dotted lines indicate forecasts
3–6% inflation target band

US$ per barrel

Evolution of oil price forecasts
Source: SARB
MPC meetings

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


Assessment rates

Water

Electricity

Education


Petrol

Diesel

Other

Administered prices*


Percentage points
Contributions to administered price inflation

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

OCTOBER 2024
is projected to average 5.9% for the whole year. The trajectory
for administered price inflation is primarily shaped by electricity
price inflation. For instance, electricity has contributed almost
half (3.2 percentage points) of the year-to-date administered
headline number, much higher than its relative weight of 22.1%
in the administered prices basket.
Electricity prices have risen by an average of 12.1% per year
since 2009, against a rise of 5.3% per year for headline inflation
over the same period. This sharp rise in electricity prices is
meant to bring them to more cost-reflective levels to increase
supply. Electricity price inflation is forecast to average 13.6%
this year before slowing to an average of 9.0% by the end of
the review period, in line with municipal budget projections.
Considering the annual increases (July/August of the current
year to June the following year), electricity price inflation
moderated to 11.5% in August from 15.3% the year before.
In recent years, Eskom’s revenue applications have been above
20.0%, with the approved tariff increases markedly above
the midpoint of the 3–6% inflation target band. This trend is
expected to continue and, given its large weight of nearly a
quarter of the administered price basket, presents risks to the
administered inflation outlook.
Fuel price inflation, projected at 0.6% again this year, will once
more support a slower rise in administered price inflation.
However, this muted fuel inflation mostly reflects the moderation
in the basic fuel price (BFP), a component determined by the
Brent crude oil price and the rand exchange rate – which are
wholly determined by market forces (the truly administered
components in the fuel price basket include fuel taxes, levies
and margins). If the BFP is excluded from fuel price inflation,
administered price inflation is markedly higher at 7.5% in 2024.
Meanwhile, inflation for water tariffs and assessment rates has
trended lower. Water tariffs eased by 2.1 percentage points to
7.5% this year. Assessment rates also moderated, coming in at
5.0% in August (compared with 8.4% the year before).
Given the ‘indexation’ of most administered costs to headline
inflation, the easing trend for headline inflation bodes well for
administered price inflation going forward.27 Lower headline
inflation should lead to a decline in administered price inflation,
in turn reinforcing the downward shift in headline inflation in a
virtuous cycle.28 SARB projections are for administered price
inflation to average 5.1% (3.1% if electricity is excluded) over
the forecast horizon.
27 K Walsh, ‘Review of administered prices in South Africa: Municipal rates
and taxes’, Special Occasional Bulletin of Economic Notes: Special
OBEN/23/01, Pretoria: South African Reserve Bank, August 2023.
28 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.
Percentage change over 12 months

Electricity prices*
Sources: Stats SA and SARB

Actual

Mar 2024

Sep 2024
* Dotted lines indicate forecasts

Per cent
Electricity tariffs: requested versus granted
Source: Eskom
* Approval still under review


Applied for by Eskom

Granted by Nersa
Midpoint

OCTOBER 2024
Food and non-alcoholic
beverages inflation
Food and non-alcoholic beverages (NAB) inflation eased over
the past six months, reflecting favourable conditions at home
and abroad. The containment of avian influenza (bird flu) and
foot and mouth disease, a stronger rand exchange rate and the
absence of load-shedding have all helped ease domestic price
pressures, while the deflationary global agricultural commodity
prices added further disinflationary impetus. Food and NAB
inflation slowed to 4.7% in August 2024 from 5.1% in March
this year.
The decline in food inflation over the past year was broadbased. By August 2024, 46.2% of the food basket inflated at
rates below the target midpoint, up from 15.4% a year earlier.
However, food inflation appears to have bottomed out as it
ticked up marginally in August 2024.
Food inflation has benefitted from lower price increases for
meat, vegetables as well as milk, eggs and cheese. Meat
supply has improved mainly on increased slaughter activity,
along with the containment of the bird flu in poultry. The foot
and mouth disease in cattle has also largely been contained.
At the same time, the suspension of load-shedding has
reduced the spoilage in milk, eggs and cheese, while
enabling irrigation and thus increased supply of vegetables.29
Although meat inflation is expected to edge slightly higher
in the coming months, it is only projected to average 1.2%
this year. However, bread and cereals inflation has been
climbing in recent months following a sharp jump in white
maize spot prices amid concerns over possible droughtrelated shortages.30 This rise follows a 13-month deceleration
streak through to May of this year, where inflation for this
category bottomed at 3.9%. The SARB expects inflation
for vegetables, milk, eggs and cheese as well as bread and
cereals to average 4.8%, 7.4% and 5.3% respectively in 2024.
Food and NAB inflation has been downwardly revised to
4.7% in 2024 (5.5% in the April MPR). While near-term price
pressures are anticipated due to the El Niño-induced summer
drought, the prospect of a return to wetter La Niña conditions
during the 2024–25 summer crop season should keep food
price pressures contained.
29 Vegetables inflation slowed to 4.4% in August 2024 from a peak
of 23.6% in October 2023.
30 The white and yellow maize harvest for the 2023–24 season is estimated
at 6.1 million and 6.7 million tonnes respectively, a decrease of 28.5%
and 15.2% respectively when compared with the previous season.
Percentage change
Food inflation comparison*
Source: Stats SA

-5

Food and NAB

Vegetables

Bread and cereals

Milk, eggs and cheese

Other food**

Meat

Oils and fat
* Average from January to August
** Other food includes fish, fruit, sugar, sweets and desserts
and NAB


US dollar

Rand
Percentage change over 12 months

2022 2023 2024
2020 2021
Global food commodity price index
Source: FOA
-30
-20
-10

Percentage change over four quarters

Food and NAB inflation*
* Dotted lines indicate forecasts
Sources: Stats SA and SARB

Actual

Sep 2022

Mar 2023

Sep 2023

Mar 2024

Sep 2024

OCTOBER 2024
Core inflation
South Africa’s core inflation remained well contained through
the pandemic inflation surge, averaging 0.3 percentage points
above the target midpoint at its peak (both in 2022 and 2023).
The relatively contained core inflation during the height of the
global inflation surge countered the upward price pressures
from the sharply higher food and fuel price increases, mitigating
the acceleration of overall headline inflation. Owing to muted
core inflation, headline inflation peaked at 7.8%, while many
emerging markets saw inflation reach double digits. Indeed,
South Africa fared better even against the major advanced
economies such as the US, eurozone and UK where headline
inflation peaked in the 9–11% range.
Year to date, core inflation has averaged 4.6%, with the
past three outcomes at, or below, the midpoint. Core goods
inflation has decelerated markedly over the past six months,
pulling down on core inflation. Despite some volatility earlier in
the year, services price inflation also slowed in recent months,
assisting the decline in core inflation. Along with easing core
inflation, the other measures of underlying inflation, namely
trimmed mean inflation, supercore inflation and the persistent
and common component of inflation (PCCI), also point to
softening inflation pressures. This indicates that demand and
supply have been brought into better balance, thanks to a
moderately restrictive monetary policy stance along with the
dissipation of some supply shocks (Box 6). Projections are for
core price inflation to undershoot the target midpoint from this
year through to 2026.
Since it peaked at 6.6% in August 2023, core goods inflation
has decelerated sharply, shaving off 3.2 percentage points
over the year to August 2024. Core goods inflation has
benefitted from softening global goods inflation and a
stronger rand exchange rate over the review period, along
with base effects.
Consumer food price inflation (September 2024 forecasts)
Percentage change over four quarters, March 2024 forecasts in brackets

Actual
Forecast
Weight
2013–23
2023*
2024Q1
2024Q2
2024Q3
2024Q4
2024*
2025Q1 2025Q2
Food and non-alcoholic beverages


* Annual average percentage change
Sources: Stats SA and SARB


Services

Core goods

Core
Percentage change over 12 months

Components of core inflation
Sources: Stats SA and SARB

3–6% inflation target band
Midpoint
Percentage change over 12 months

Measures of underlying inflation

Sources: Stats SA and SARB

PCCI

Trimmed mean

Supercore
Midpoint
3–6% inflation target band

OCTOBER 2024
Despite some setbacks, services inflation also generally eased.
While some large-weight components of the services basket
such as medical insurance inflation have normalised to prepandemic levels, others continue to play catch-up. Housing,
a big-ticket item, has continued to surprise to the downside
(2.9% in August 2024, against the SARB’s expectation of
3.4%). Nevertheless, the SARB expects housing inflation to
increase in line with the projected expansion in economic
activity and a relatively tight rental market (Box 7). Services
price inflation is forecast higher at 4.7% this year, up from
4.2% in 2023 but to slightly undershoot the target midpoint
in the outer years of the forecast, reflecting subdued inflation
expectations and ULCs.
Percentage points
Contributions to change in core goods inflation

Aug
Oct
Dec
Feb
Apr
Jun
Aug

Sources: Stats SA and SARB
* Change in year-on-year rate compared to previous month
Other
Vehicles
Household contents
Clothing and footwear
Alcoholic beverages
and tobacco
Core goods*
Headline inflation (September 2024 forecasts)
Percentage change over four quarters, March 2024 forecasts in brackets
Actual
Forecast
Weight
2013–23
2023*
2024Q1
2024Q2
2024Q3
2024Q4
2024*
2025Q1
2025Q2

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
Medium-term inflation outlook
Within the QPM, the medium-term inflation outlook is
determined by inflation expectations, the output gap, exchange
rate gap and ULCs.
Inflation expectations dynamics feed into inflation by serving
as a gauge for both price and wage setters in the economy.31
31 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 Special Occasional Bulletin of Economic Notes: Special
OBEN/24/01, Pretoria: South African Reserve Bank, April 2024.

OCTOBER 2024
Per cent

2022 2023 2024
2020 2021
Two-years-ahead inflation expectations:
All participants
Source: BER

3–6% inflation target band
Midpoint

Mar 2024

Sep 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


Actual

Mar 2024

Sep 2024

Percentage change over four quarters
2019 2020

2025 2026

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

* Dotted lines indicate forecasts
Midpoint
After peaking at 5.6% in the fourth quarter of 2023, the Bureau
for Economic Research’s (BER) two-years-ahead surveyed
expectations have moderated for three consecutive quarters
to reach a multi-year low of 4.8% in the third quarter of this
year.32 Nevertheless, surveyed expectations remain above the
SARB’s preferred 4.5% midpoint, indicating that the goal of
lowering and anchoring expectations at the midpoint is not
yet complete.
The output gap, which captures the extent of demand
pressures on inflation, is negative and wider in the near term,
but closes by the end of the forecast period. The negative
output gap is consistent with the projected undershoot in
core inflation. The closing output gap towards the end of
the forecast period reflects declining inflation, along with
the expected further policy easing, that provides a lift to
household and investment spending.
Medium-term inflation dynamics are also shaped by
movements in the rand exchange rate, which can raise
or lower the impact of imported inflation on headline.
The rand appreciated over the review period, as reflected
in the improved starting point for the rand to the US dollar
(R18.04 at the September 2024 MPC meeting compared
with R18.88 at the March MPC meeting).33 Despite the strong
showing in recent weeks, the rand is projected to depreciate
slightly (0.8%) over the medium term, falling to an average
of R18.19 by the fourth quarter of 2026. Meanwhile, the real
rand exchange rate, with a starting point undervaluation of
2.4%, is expected to be inflationary but progressively less
so as the undervaluation shrinks, resulting in a marginal
overvaluation of 0.4% by the final quarter of the forecast
period. The improvement in the real rand should help mitigate
some imported inflationary pressures.
The labour market has continued to surprise on the downside,
with wage growth not matching the SARB’s expectations of
backward indexation. This may reflect the weakness in the
labour market, where employment growth has been muted due
to weak economic activity. Over the medium term, productivity
is expected to rise at a faster pace than real wages, in line
with the projected stronger GDP growth; hence, the ULC gap
is forecast to remain negative throughout the forecast period.
Nominal ULC growth is also forecast to undershoot the target
midpoint, averaging 3.5% over the forecast horizon, lending
further support to lower inflationary pressures.34
32 Two-years-ahead inflation expectations averaged 5.2% and 4.9% in
the first and second quarters of 2024 respectively. However, the average
expectations mask the wide dispersion across the different groups,
with business expectations, at 5.2% in the third quarter, still way
above the target midpoint.
33 See discussion in the financial markets chapter for the drivers
of the rand appreciation.
34 Nominal ULC growth determines whether inflationary pressures are the
result of wage increases or productivity decreases. Growth in real salaries
is projected at 1.0% in 2024 from -1.3% in 2023, and to average 0.6%
over the forecast period, while productivity growth is expected to rise to
1.9% in 2024 from -0.3% in 2023, and to average 1.4% over
the medium term.

OCTOBER 2024
Conclusion
Headline inflation decelerated strongly in recent months, with
the latest outcome slightly undershooting the target midpoint.
Disinflation has benefitted from dissipating domestic cost
shocks as well as the continued transmission of a moderately
restrictive monetary policy stance. Over the medium term,
core inflation is expected to remain muted amid subdued
wage pressures, easing inflation expectations and a relatively
strong rand exchange rate. The QPM baseline projection
indicates an undershoot of the target midpoint in both 2025
and 2026. Risks to this inflation outlook are assessed to
be balanced.
Box 6 Supply shocks ‘under the hood’ of personal
consumption inflation
Between October 2023 and July of this year headline inflation
averaged 5.4% before decreasing by a full percentage point, dropping
just below the target midpoint in August. Key to understanding
the effectiveness of monetary policy is getting a clear sense of the
demand and supply sources of inflation. This box decomposes
South Africa’s personal consumption expenditure (PCE) inflation
(the prices paid for goods and services consumed by households)
into its demand and supply drivers following the methodology of
Shapiro (2022).1
PCE inflation rose sharply in 2022, peaking at 8.1% in the fourth
quarter of that year. The surge in inflation is generally attributed to
a recovery in demand and multiple, large and often overlapping
global and domestic supply shocks.2 Since the highs of 2022,
inflation showed considerable inertia, only slowly returning to the
4.5% target midpoint.
The decomposition shows that the demand-driven component of
PCE inflation returned closer to pre-pandemic levels this year and
is not the main reason for slower disinflation. Rather, the slower
remission of supply shocks mostly explains the relative stickiness in
inflation over the past year, as reflected in the still elevated supplydriven component of PCE inflation.
The further unwinding of supply shocks provides impetus to the
near- and medium-term disinflation seen in the current forecast.
1 The personal consumption expenditure (PCE) inflation decomposition
entails running reduced-form vector autoregressions (VARs) of price
and quantity equations for each of the 22 PCE categories and using the
residuals to classify inflation in each category as demand- or supply-driven.
See A Shapiro, ‘Decomposing Demand- and Supply-driven Inflation’,
Federal Reserve Bank of San Francisco Working Paper Series 2022(18),
San Francisco: Federal Reserve Bank of San Francisco, October 2022.
2 Global supply chain disruptions were exacerbated by Russia’s invasion of
Ukraine and further worsened by geopolitical tensions, especially in the
Middle East. Domestic supply shocks included load-shedding, El Niño,
animal disease outbreaks and a sharply depreciated currency.
Percentage change over four quarters

Inflation

Source: Stats SA

2022 2024

Midpoint
3–6% inflation target band

Personal consumption expenditure inflation

Headline inflation
Percentage points

Contributions to personal consumption
expenditure inflation*
Sources: Stats SA and SARB
* Percentage change over four quarters (three-quarter centred moving
average; latest quarter not a full average)

Demand-driven
Supply-driven

OCTOBER 2024
Box 7 Muted housing inflation but how sustainable?
Housing inflation in South Africa has trended well below its longterm average in recent years, averaging 2.7% in 2022 and 2023
and 3.1% year to date. Subdued housing inflation has helped to
keep services and thus core inflation contained, easing pressures
on headline inflation. Meanwhile, homeownership costs have risen
strongly in recent years, reflecting the large increases in municipal
rates and taxes, other costs as well as interest rates. The rental
market has also tightened sharply in the wake of the pandemic.1
These cost escalations and demand recovery do not appear to be
reflected in housing inflation but suggest upside risks to this important
component of consumer prices.
Market indicators of rental escalations, including the PayProp and
TPN rental series, show rental inflation rising significantly after the
pandemic. The divergence between the official and market measures
of rental inflation presents upside risk of a catch-up over the medium
term, considering their historically strong co-movement. Indeed, over
the past three years the SARB had expected rental inflation to return to
its long-term average, but it has repeatedly surprised to the downside.
One way of explaining this inconsistency between housing inflation
and squeezed supply is that landlords are keeping prices low to
increase occupancy rates, which may be a bigger priority at this
juncture compared to cost recovery. But this raises questions
about how sustainable such an approach is. How long will landlords
continue to ‘subsidise’ tenants and take a lower return on their
capital when vacancy rates are historically low and the rental market
tight? Equally, with stronger economic growth over the medium
term, demand for rentals should rise and vacancy rates tighten
further, turning it into a lessors’ market. In addition, the supply of
rental housing units is unlikely to increase much over the near to
medium term as activity in the residential building sector remains
depressed.2 This constellation of factors may present an opportunity
for landlords to escalate rentals markedly, both to balance supply
and demand and to recoup lost earnings.
Thus, despite the downside surprises to housing inflation over the
past three years, risks remain tilted to the upside. Materialisation
of these risks could push core inflation higher and dent the recent
easing trend for headline inflation, given the large weight of housing
in the consumer price index (CPI) basket.
1 Homeownership costs are composed of mortgage costs, cost of
maintenance for the property along with property taxes, levies and
insurance costs. Mortgage repayments are up 39.8% while other
homeownership costs have averaged about 8.6% between November
2021 and May 2023. Rental prices increased by a modest 3.7% on
average over the same period. See S Knox, M Mofokeng and
W Simbanegavi, ‘A confluence of factors drives mortgage impairments
higher’, South African Reserve Bank Economic Note No. EN/2024/114,
Pretoria: South African Reserve Bank, August 2024.
2 Statistics South Africa (Stats SA) data show that both residential building
plans passed and units completed recorded negative outcomes for 7 out
of the past 10 quarters. See Stats SA, ‘Selected building statistics of the
private sector as reported by local government institutions’, August 2024.
Percentage change

Housing inflation

2024*
Source: Stats SA
* Average from January to August
2010–19 average
Percentage change over four quarters

Rental inflation
-1

Sources: PayProp, Stats SA and TPN Credit Bureau

PayProp

TPN escalation

Stats SA actual rentals


Vacancy rates*

Housing inflation (right-hand scale)
Percentage change over four quarters (both scales)

2016 2017

2020 2021

Vacancy rates and housing inflation
* Data for 2017Q1 not available
Sources: TPN Credit Bureau and Stats SA

OCTOBER 2024
Conclusion
Global inflation continues to moderate, suggestive of the
final ebbing of the pandemic and the subsequent recovery.
Subdued inflation momentum, along with signs of cooling
labour markets, has provided greater confidence to central
banks that inflation will stabilise at targets. Accordingly, major
global central banks have begun normalising policy.
However, the disinflation process has not been smooth, nor
is it even complete. Inflation remains above target in many
countries and some central banks had to reverse their easing
to deal with renewed inflationary pressures. In many places,
underlying inflation – especially in services prices and wages – is
proving resistant to further moderation, while some economies
continue to experience robust consumption and economic
growth despite elevated borrowing costs. Accordingly, the pace
and quantum of rate cuts over the coming year will continue
to diverge across countries and regions. What appears to be
common across both advanced and emerging economies is
that central banks are moving carefully, and deliberately, as
they look to incoming data to guide future policy direction.
Presently, data suggest relatively tight policy stances, but also
that the room to manoeuvre with policy is limited.
Assuming no major new shocks to the world economy, the
disinflation process should gradually progress and monetary
conditions ease further. The stickiness of core inflation,
however, suggests that long-run neutral interest rates are
unlikely to fall back to the levels they were before the pandemic.
Very high public debt levels, adverse demographics in much
of the world and climate change all represent structural
impediments to much lower neutral rates. Geoeconomic
fragmentation, driven by political contestation, presents
large additional risks to capital flows, supply chains and
trade. Technological advances, propelled forward by artificial
intelligence, and the need for cheaper renewable energy may
offset or accentuate these pressures.35
With inflation risks on the global horizon, central banks and
fiscal authorities will need more sustainable policy settings.
Governments and central banks need to create policy space
(through fiscal consolidations and stabilising inflation at targets)
to be able to support stronger growth over the medium to
longer term.
South Africa’s inflation has softened in the past two months
and the outlook has improved markedly. The rand appreciation
has added impetus to the disinflation process, which had,
until now, been driven by a moderately restrictive monetary
policy stance, slowing global goods price increases and the
subsidence of the various domestic idiosyncrasies such as
load-shedding and animal diseases.
35 Technological advances that raise the productivity
of capital would imply higher neutral rates.
This confluence of favourable shocks has given the MPC
greater confidence that inflation and inflation expectations
will stabilise around the target midpoint. Indeed, the QPM’s
baseline forecast indicates a sustained undershoot of headline
and core inflation as well as inflation expectations over the
forecast period. With this backdrop, the MPC lowered the repo
rate by 25 basis points in September 2024, leaving the policy
stance still moderately restrictive.
Declining inflation coupled with the interest rate relief, twopot retirement reform and improved electricity supply, should
bolster sentiment and spur growth in household spending
and investment. While near-term growth remains muted, the
economy is projected to expand at a somewhat faster pace
in the outer years of the forecast as the drag from electricity
supply is lifted and other supply-side bottlenecks become less
binding. This, however, is premised on further progress on
structural reforms.
As the energy constraint and logistical bottlenecks become
less binding, the attention shifts to other constraints that
depress business sentiment and hold back investment, and
thus growth. Long-term borrowing costs remain high, mostly
reflecting high public debt levels. Further progress on fiscal
consolidation would reduce corporate investment costs,
minimise crowding-out of the private sector and create fiscal
space to support public investment programmes. Other
actions that can support better growth outcomes include
the better alignment of administered price increases with the
projected low-inflation environment, ensuring that public sector
real wages rise in line with productivity and progress in the
implementation of broader structural reforms, including in
education, water and electricity distribution.

OCTOBER 2024
Statement of the Monetary Policy Committee
30 May 2024
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

Since the previous MPC, the rand has traded in a range of R19.32/US$ (April 19) to R18.05/US$ (May 22).

The rand is the third-best performing major emerging market currency for the period since the previous MPC. It is fifth for the year to date.

The July 2023 forecast had inflation at 4.5% by 2025Q3. September 2023 forecasted it to be reached in 2025Q2, which is the last time this was moved
up. Subsequently, November 2023 had it at 4.5% by 2025Q3; January 2024 by 2025Q3; and March 2024 by 2025Q4.

Headline inflation was 4.4% in April 2021 and 5.2% in May 2021. Headline inflation has been above 4.5% for every subsequent print, a period of
36 months.

The 2024Q1 growth rate has been marked down to 0.2% from 0.4% quarter on quarter (q/q); at the same time, 2024Q2 has been marked up, from
0.4% to 0.7% q/q.

The number of load-shedding days has been reduced from 200 days to 180, where a day is 24 hours of load-shedding and not any calendar day with
load-shedding. The projected cost to GDP from load-shedding for 2024 is down to 0.5 percentage points (pp), from 0.6pp in the March forecast, and
declines to 0.2pp for 2025 and 0.04pp for 2026.
We had an uncertain start to 2024, but recently,
developments have been somewhat more positive.
Inflation outcomes were worse than expected early in the
year, leading to a repricing of rate expectations. There is
still considerable uncertainty about the longer-run inflation
outlook, globally. That said, inflation outcomes in the United
States (US) have been more benign recently and markets
still see some room for adjustments by the US Federal
Reserve this year. We may also see easing by other major
central banks.
Meanwhile, oil prices are back to where they were at the
start of the year, close to US$80 per barrel, after briefly
exceeding US$90 per barrel. Although geopolitical tensions
are far from resolved, some of the more adverse economic
scenarios, such as oil prices above US$100 per barrel,
appear less probable now. Our own forecast suggests oil
prices will remain near their current levels.
The exchange rate of the rand has been particularly volatile
since the previous Monetary Policy Committee (MPC)
meeting.1 It briefly appreciated to a 10-month high against
the US dollar last week. The starting point for our forecast is
R18.57 against the US dollar.2 Markets remain focused on
the direction of domestic policy, a theme that has dominated
many investor conversations over the past few months.
Conditions remain uncertain, but we expect greater clarity
in due course.
Turning to the outlook, we now see inflation stabilising at
our 4.5% target objective in the second quarter of next year.
This is an improvement on our March forecast, which was to
only reach this milestone at the end of 2025. The changes to
the outlook, however, are not large when compared to our
March forecast. Average inflation for 2025 is only a 10th of
a percentage point lower. The task of achieving our inflation
objective is not yet done.3
The change in our inflation forecast mostly reflects recent
data outcomes, with the CPI releases for March and April
turning out slightly better than expected. We have revised
down our 2024 food and core forecasts marginally.
Fuel price inflation is now expected to be higher, in the
near term, but it improves for 2025. This helps our forecast
to get to the target midpoint sooner.
Nonetheless, the MPC remains concerned that inflation
expectations are elevated. After three years4 of inflation
being above 4.5%, few survey respondents, especially from
businesses and trade unions, now believe that inflation will
be at 4.5% in two years’ time.
Although the MPC assesses the inflation forecast risks to
be broadly balanced at present, high inflation expectations
require that we deliver on our target sooner rather than later
in order to re-anchor expectations.
Turning to the growth outlook, economic activity indicators
for the first quarter have been coming in worse than
expected, despite reduced electricity load-shedding.
However, these higher-frequency data can be volatile. We
expect slightly weaker first-quarter growth, but this will be
offset by better second-quarter growth.5 We still forecast
GDP growth of 1.2% this year. The growth numbers for the
outer years also remain unchanged.
We assess the risks to the growth outlook as balanced.
The recent improvement in the power supply, with no loadshedding since 26 March, is a welcome development. We
have revised our load-shedding assumption down, but
additional revisions may be required if this performance
is sustained.6
Overall, our forecasts show a modest acceleration in growth
over the next few years, alongside a gradual stabilisation
of inflation at our target. However, uncertainty is unusually
elevated at the moment.

OCTOBER 2024
Considering this outlook, the MPC decided to keep the repo
rate unchanged at 8.25%. The decision was unanimous.
The forecast continues to see policy normalisation, with rates
easing into more neutral territory by next year. As before, the
rate path from the quarterly projection model (QPM) remains
a broad policy guide, changing from meeting to meeting.
Decisions of the MPC will continue to be data dependent
and sensitive to the balance of risks to the outlook.
We are committed to stabilising inflation at the midpoint of
the target band. Achieving this outcome will improve the
economic outlook and reduce borrowing costs.
Finally, we reiterate the views of the Committee on additional
measures that would improve economic conditions. These
include reaching a 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 (May 2024)*

90%

60%

30%

Repo rate

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

OCTOBER 2024
Summary of assumptions: Monetary Policy Committee
meeting on 30 May 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 51 and 52 respectively.

OCTOBER 2024
Summary of selected forecast results: Monetary Policy Committee meeting
on 30 May 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 (MPC).
b. The figures in brackets represent the previous forecasts of the MPC.

OCTOBER 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, US and Japan). The bilateral exchange rates are
weighted by export trade weights. The implied starting point for the rand forecast is R18.57 to the US dollar.
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, 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 unit labour cost (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.
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 (NRIR) (2.5%).
g.
The 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 Group of Three (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 (MPC).
k.
The figures in brackets represent the previous forecasts of the MPC.

OCTOBER 2024
Statement of the Monetary Policy Committee
18 July 2024
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

For example, between April and May, euro area inflation rose to 2.6% from 2.5%. In Brazil, inflation increased to 4.2% in June from 3.9% in May.

The previous projection was for growth of 0.7%.

The GDP impact of load-shedding in 2024 has been reduced to -0.2 percentage points (pp), from an estimated -0.5pp in the May forecast. It is -0.1pp
for 2025 (compared with -0.2pp previously), and 0pp for 2026 (-0.04pp previously). This contrasts with an estimated -1.5pp for 2023.

Headline inflation is expected to average 4.8% in 2024Q3 and 4.3% in 2024Q4.

The implied starting point was R18.60 in the May forecast.

Core inflation averages 4.6% for 2024, 4.4% for 2025 and 4.5% for 2026.

Market-based measures of inflation expectations have similar dynamics. These break-even rates have declined recently, but remain generally above
the midpoint. Shorter-term expectations (5 years) are at 4.6%; longer-term (10 year) expectations are at 5.7%.

The quarterly projection model’s (QPM) forecast for two-years-ahead inflation expectations stabilises at 4.5% by 2025Q1.
As we move into the second half of the year, global inflation
continues to ease. The very rapid price increases of 2022 and
2023 have receded. However, inflation in most economies
has yet to stabilise in line with targets. For example, in June,
consumer price inflation was 3% in the United States (US),
and 2.5% in the euro area, still above those economies’
2% targets. Services and wage price inflation has proven
stubborn, underpinned by resilient economic activity and
low unemployment rates across major economies.
Clearly, the battle against inflation is not yet won and for this
reason global interest rates remain elevated.
At the same time, there has been some policy divergence,
which reflects different country circumstances.
Since our last meeting, policy rates were lowered in Canada,
Switzerland and the euro area, but kept unchanged in the
US, United Kingdom (UK) and Japan. Among emerging
markets, countries that have lowered inflation more,
especially in Latin America, have been able to cut policy
rates more. A concern for central banks, however, is that
lower inflation outcomes have not always been sustained.1
Turning to South Africa, economic performance in the
first half of the year was disappointing. The economy
contracted slightly in the first quarter, by 0.1%, and recent
data, including last week’s mining and manufacturing
numbers, have caused us to trim our second quarter
growth estimate modestly, to 0.6%.2 Over the medium term,
we expect somewhat faster growth, supported by a more
reliable electricity supply and improving logistics, among
other factors.3 Our revised growth projections nonetheless
remain below longer-run historical averages, of about 2%.
The risks to this forecast are assessed as broadly balanced,
with ample scope for structural reforms to lift growth further
over the medium term.
On the inflation front, the most recent headline print, for
May, was 5.2%, unchanged from April and still in the top
half of our target range. The outlook, however, has improved
somewhat. Headline consumer price inflation for this year is
now projected at 4.9%, compared to 5.1% at the previous
meeting.4 Over the next few quarters, headline inflation is
expected to dip below the 4.5% midpoint, mainly because
of fuel and food prices. This outlook is supported by the
stronger rand. The implied starting point for our forecast
is R18.35 to the US dollar.5 Over the medium term, we
continue to see inflation stabilising at 4.5%, with core inflation
remaining close to this midpoint objective throughout.6
For inflation expectations, the latest survey results show
average expectations at 5% next year and 4.9% two years
ahead, still uncomfortably above the SARB’s 4.5% objective
and above our own inflation forecasts. However, all categories
of respondents lowered their inflation expectations from the
previous survey.7 We anticipate further progress as inflation
slows, helping to re-anchor expectations firmly at 4.5%.8
While the forecast has improved, the balance of risks is
assessed to the upside.
Against this backdrop, the Monetary Policy Committee
(MPC) decided to keep the repo rate unchanged at 8.25%.
Four members preferred an unchanged stance and two
preferred a reduction of 25 basis points.
In discussing the stance, MPC members agreed that
restrictive policy remains appropriate to stabilise inflation at
4.5%. The Committee assessed that an unchanged stance
remained appropriate, given the inflation risks. Some
members, however, were of the view that the inflation
outlook had improved enough to reduce the degree of
restrictiveness.

OCTOBER 2024
Global interest rates remain high, especially in the US,
and rates may stay higher for even longer than markets
currently anticipate. This presents risks to the currency
outlook.
Domestically, inflation expectations do not yet reflect the
4.5% midpoint objective over the medium term. While
expectations are moving in the right direction, they continue
to show the impact of the recent inflation surge.
We remain concerned about administered prices. We have
had to mark up electricity inflation for this forecast round
even as other categories shifted lower.
Services price inflation also remains uncomfortably above
the midpoint.
The forecast continues to see rates easing into more
neutral territory by next year. As before, the rate path from
the quarterly projection model (QPM) remains a broad
policy guide, changing from meeting to meeting.
Decisions of the MPC will continue to be data dependent
and sensitive to the balance of risks to the outlook.
We are committed to stabilising inflation at the midpoint of
the target band. Achieving this outcome will improve the
economic outlook and reduce borrowing costs.
Finally, we reiterate the views of the Committee on additional
measures that would improve economic conditions. These
include reaching a 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
Repurchase rate forecast (July 2024)*

90%

60%

30%

Repo rate

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

OCTOBER 2024
Summary of assumptions: Monetary Policy Committee
meeting on 18 July 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 51 and 52 respectively.

OCTOBER 2024
Summary of selected forecast results: Monetary Policy Committee meeting
on 18 July 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 (MPC).
b. The figures in brackets represent the previous forecasts of the MPC.

OCTOBER 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, US and Japan). The bilateral exchange rates
are weighted by export trade weights. The implied starting point for the rand forecast is R18.35 to the US dollar.
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, 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 unit labour cost (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.
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 (NRIR) (2.5%).
g.
The 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 Group of Three (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 (MPC).
k.
The figures in brackets represent the previous forecasts of the MPC.

OCTOBER 2024
Statement of the Monetary Policy Committee
19 September 2024
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank,
at a meeting of the Monetary Policy Committee in Pretoria

For instance, headline inflation for August was 2.2%, in both the euro area and United Kingdom (UK), and 2.5% for the US, all against targets of 2%.

The July forecast anticipated growth of 0.6% in 2024Q2, versus an outcome of 0.4%. However, first-quarter growth was revised up to 0% from -0.1%,
so the level of GDP was only 0.1% below our expectations in 2024Q2.

This refers to the quarter-on-quarter, seasonally adjusted measure. The year-on-year rates are 1.4% and 1.7% for 2024Q3 and 2024Q4 respectively.

The estimated GDP impact of load-shedding has been cut back to -0.13 percentage points (pp) for 2024 and 0pp for 2025 and 2026. This contrasts
with -0.18pp, -0.05pp and 0pp for those years respectively as of the July Monetary Policy Committee (MPC) meeting. The estimated 2023 impact is
-1.5pp.

The starting point for the July forecast was R18.35 per US dollar.

Housing inflation slowed unexpectedly, from 3.3% to 2.9%, in the June CPI. This item is surveyed quarterly.
As we move towards the end of the year, global inflation
is slowing and nearing targets.1 Given these gains, major
central banks have lowered rates. We saw the European
Central Bank cut again last week, the Bank of England
eased in August and the United States (US) Federal Reserve
reduced rates last night. The US dollar has also cooled off in
recent months, providing some respite for other currencies,
including the rand.
Despite these welcome developments, central banks are
moving carefully and policy stances remain relatively tight.
Economic activity in major economies has been resilient,
even as inflation eases. Underlying measures of inflation
have also fallen less than headline, primarily because of
elevated housing inflation and robust wage growth.
The case for caution is further bolstered by the difficult
and unpredictable geopolitical environment, with risks of
inflationary shocks through trade restrictions and supply
chain disruptions, among other factors.
Overall, global conditions have become more favourable,
but there are still risks. A ‘soft landing’ is looking more likely
after the worst inflation surge in a generation, but it is not
inevitable. The financial market volatility of early August was
a reminder of the fragilities and uncertainties in the system.
For these reasons, central banks are approaching the
endgame with caution.
Turning to South Africa, output was marginally below
our expectations for the first half of the year.2 We expect
improvements in the second half, with growth of 0.6% in
both quarters.3 This reflects rising confidence, in part due
to a stable electricity supply. We also expect extra spending
given the withdrawals from the new two-pot retirement
system, although some of these funds will be absorbed by
debt repayments and tax.
For the medium term, our growth projections have once
again edged higher. The upgraded forecast is premised on
better-functioning network industries, especially electricity,
alongside broader reform momentum.4 Since potential
growth is higher in the forecast, supply and demand remain
broadly balanced, even as growth accelerates. The pace of
growth nonetheless remains below longer-run averages of
around 2%.
A particular concern is investment, which has been
contracting for four consecutive quarters. A stronger
investment performance is a prerequisite for sustained
higher growth and, although we continue to expect an
investment recovery, its scale and speed will be a key
indicator of South Africa’s longer-run economic prospects.
The risks to the growth outlook are assessed as balanced.
Moving to inflation, headline eased to 4.4% in August, a
three-year low, and close to the middle of our target range.
Our forecast suggests this progress will be sustained, with
inflation contained below the 4.5% midpoint of our range
through to the end of the forecast horizon, in 2026.
In the near term, we continue to see a dip in headline
inflation, supported by the stronger exchange rate and lower
oil prices. The implied starting point of the rand is R18.04 to
the US dollar, an appreciation of nearly 2% relative to our
July assumption.5 This contributes to fuel price deflation,
which helps keep headline inflation below 4% through the
first half of next year. As usual, we will look through this nearterm supply shock, focusing on the medium-term outlook.
Lower headline inflation also reflects a better food price
outlook, with inflation for this category below the midpoint
through 2025 and 2026. However, these benefits are partly
offset by higher electricity prices, with an expected inflation
rate more than double that of headline.
For core inflation, we expect the trajectory to be slightly
below 4.5% over the medium term. Again, this is primarily
due to the exchange rate, which affects core mainly through
import prices.
Services inflation, meanwhile, is expected to stabilise
near the midpoint early next year, after a stretch of prints
above 4.5%. This partly reflects subdued housing inflation,
which has accelerated less than expected this year.6 Lower
inflation expectations also contribute to the improved
services outlook.

OCTOBER 2024
According to the latest survey, these expectations are still
in the top half of the target range, at 4.8% for both 2025
and 2026.7 They are nonetheless moving – slowly – in the
right direction.8 As long as headline inflation stabilises at
lower levels, we anticipate further progress in re-anchoring
expectations around the middle of our target range.9
The risks to inflation are assessed as balanced.
Against this backdrop, the MPC decided to reduce the
policy rate by 25 basis points to 8% per annum, with effect
from 20 September.
In discussing the stance, MPC members considered an
unchanged stance, a 25 basis point cut and a 50 basis
point cut. The MPC ultimately reached consensus on
25 basis points, agreeing that a less restrictive stance
was consistent with sustainably lower inflation over the
medium term.
The forecast sees rates moving towards neutral next year,
stabilising slightly above 7%. As before, the rate path from
the quarterly projection model remains a broad policy guide,
changing from meeting to meeting. Decisions of the MPC
will continue to be data dependent and sensitive to the
balance of risks to the outlook.
There are scenarios where inflation could undershoot the
baseline forecast, if oil prices are lower or the exchange rate
appreciates further. Conversely, inflation could be higher
than our baseline forecast given scenarios such as higher
housing costs, larger electricity price increases, or wage
increases that outrun inflation and productivity growth.
Meanwhile, food inflation is a source of uncertainty, despite
recent improvements.
Global conditions pose additional challenges. Geopolitical
risks are heightened and could generate further economic
shocks. Policy uncertainty is also elevated in various
parts of the world. Both trade restrictions and debt levels
are rising and might go much higher. This mix could add
significant inflationary pressure to the world economy,
generating tighter financial conditions for South Africa and
other countries.
For the time being, South African assets have performed
relatively well. The rand has strengthened during the year,
more than most peer currencies, while long-term yields have
moderated and spreads over US rates have narrowed.10
These moves have reversed some of the deterioration
experienced since 2020.

Market-based measures of inflation expectations have also moderated. Since the previous MPC meeting, shorter-term expectations (5 years) have
declined to 4.3%, while longer-term expectations (10 years) have fallen to 5.3%.

Average expectations declined by 0.2pp for 2024 and 2025, and 0.1pp for 2026, in the third-quarter survey.

The forecast projects that two-years-ahead expectations will reach 4.4% in 2026, fractionally below the midpoint.
10 For instance, the yield on the R2035 bond have moved from about 11.4% at the start of 2024 to a peak of about 12.5% in April, and subsequently
down to around 10.3% as of mid-September.
Given a potentially adverse external environment, however,
it is crucial to sustain domestic reform momentum. This
entails both structural reforms to support growth capacity
and macroeconomic efforts to rebuild fiscal and monetary
buffers.
The MPC’s main contribution is to deliver low and stable
inflation, with well-anchored inflation expectations.
We also recommend additional measures that would
improve economic conditions. These include reaching a
prudent public debt level, further repairing and strengthening
network industries, lowering administered price inflation and
keeping real wage growth in line with productivity gains.
Per cent
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Repurchase rate forecast (September 2024)*

90%

60%

30%

Repo rate

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

OCTOBER 2024
Summary of assumptions: Monetary Policy Committee
meeting on 19 September 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 51 and 52 respectively.

OCTOBER 2024
Summary of selected forecast results: Monetary Policy Committee meeting
on 19 September 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 (MPC).
b. The figures in brackets represent the previous forecasts of the MPC.

OCTOBER 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, US and Japan). The bilateral exchange rates are
weighted by export trade weights. The implied starting point for the rand forecast is R18.04 to the US dollar.
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, 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 unit labour cost (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.
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 (NRIR) (2.5%).
g.
The 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 Group of Three (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 (MPC).
k.
The figures in brackets represent the previous forecasts of the MPC.

OCTOBER 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 trade-weighted basis. Individual projections are
done for the six largest trading partners, namely the
eurozone, United States (US), 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 tradingpartner 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)
5. World food prices is the composite food price index
of the Food and Agriculture Organization (FAO) of the
United Nations (UN) 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, 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, 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.

OCTOBER 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.
6. In projecting load-shedding costs, the forecast considers
the intensity and timing of load-shedding (whether it is a
higher or lower stage, and whether it occurs during office
hours or not). Higher stages of load-shedding, during
office hours, are more costly.

OCTOBER 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): 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%), Chinese yuan (24.53%),
US dollar (10.56%), Japanese yen (4.95%) and Indian
rupee (4.85%). Index: 2015 = 100. See also ‘Real effective
exchange rate’ below.

OCTOBER 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.

OCTOBER 2024
Abbreviations
AE
advanced economy
BER
Bureau for Economic Research
BFP
basic fuel price
BIS
Bank for International Settlements
BoE
Bank of England
BoJ
Bank of Japan
bps
basis points
CIT
corporate income tax
CPI
consumer price inflation
DM
developed market
DXY
US dollar index
ECB
European Central Bank
EAF
energy availability factor
EIA
Energy Information Administration
EM
emerging market
EMFX
emerging market foreign currencies
FAO
Food and Agriculture Organization
Fed
US Federal Reserve
FRA
forward rate agreement
FX
foreign exchange
G3
Group of Three (United States, eurozone and Japan)
GDP
gross domestic product
GFCF
gross fixed capital formation
GFECRA
Gold and Foreign Exchange Contingency Reserve Account
GNU
Government of National Unity
GPM
global projection model
GW
gigawatt
Haver
Haver Analytics
IMF
International Monetary Fund
MPC
Monetary Policy Committee
MPR
Monetary Policy Review
NAB
non-alcoholic beverages
NEER
nominal effective exchange rate
NERSA
National Energy Regulator of South Africa
NFCI
National Financial Conditions Index
NRIR
neutral real interest rate
OECD
Organisation for Economic Co-operation and Development
OER
owners’ equivalent rent
OPEC
Organization of the Petroleum Exporting Countries
OPEC+
OPEC members plus other oil-producing countries
PBoC
People’s Bank of China
PCCI
persistent and common component of inflation
PCE
personal consumption expenditure
PIT
personal income tax
PMI
Purchasing Managers’ Index

OCTOBER 2024
percentage points
PPP
Purchasing Power Parity
QPM
quarterly projection model
RAF
Road Accident Fund
REER
real effective exchange rate
repo (rate)
repurchase (rate)
r-star
long-run real neutral interest rate
SARB
South African Reserve Bank
SIT (account)
services, income and transfers (account)
Stats SA
Statistics South Africa
STEO
Short-term Energy Outlook
UK
United Kingdom
ULC
unit labour cost
UN
United Nations
US
United States
USD
US dollar
VAR
vector autoregression
VAT
value-added tax
WEO
World Economic Outlook
ZAR
South African rand