The South African Reserve Bank’s (SARB) Monetary Policy Review was released on Tuesday and noted that inflation is slowly returning to targets the South African economy is projected to expand by 1.1% this year.
The SARB noted that global central banks are likely to move cautiously in 2025 and have begun to gradually cut in interest rates.
The review noted that South Africa’s inflation has also softened.
The August print has fallen 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,” according to the review.
Because inflation had softened, the Monetary Policy Committee (MPC) decided to lower the repurchase (repo) rate by 25 basis points (bps) in September 2024 to 8.0%.
The Reserve Bank noted that the South African economy is also projected to expand by 1.8% in 2026.
The SARB has projected this growth based on the fact that the energy crisis has subsided and it forecasts that the electricity supply will improve.
South Africa’s economy will also expand due to a better-functioning logistics sector and lower inflation and interest rates, the SARB noted.
SA’s core inflation
The SARB’s primary indicator of underlying inflation is Core inflation and this has since April 2024 has moved closer to the midpoint, and dipped below it in July (4.3%) and further to 4.1% in August, the Bank noted.
“Softer core inflation reflects the marked moderation in core goods inflation on the back of a strong rand benefiting from, among other factors, the rise in the real policy rate,” the SARB added.
The review said that Core inflation is predicted to undershoot the target midpoint this year, averaging 4.4% and to remain below it for the remainder of the forecast horizon.
“Headline inflation is expected to average 4.6% in 2024 and to undershoot the target midpoint from the third quarter of this year through to the end of the forecast period.”
South Africans can breathe a sigh of relief and as the review said that over the next three quarters headline inflation is expected to print in the bottom half of the 3–6% target band, averaging 3.7%.
Gross Domestic Product
Gross domestic product (GDP) expanded at a modest rate of 0.7% in 2023, the review said and this was down from 1.9% in 2022.
The Reserve Bank said that this worsened South Africa’s growth gap vis-à-vis peer emerging markets for whom growth averaged 4.4% in 2023.
“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 said.
The Reserve Bank now projects growth of 0.6% in the third and fourth quarters of 2024, as household spending gets a boost from declining inflation and the two-pot retirement withdrawal benefit.
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