Nicola Mawson
The South African Reserve Bank (SARB) has said that it was keenly aware that while economic storms may be clearing, a cautious approach remained vital.
As the nation readies for the final Monetary Policy Committee (MPC) meeting of the year next month, SARB Governor Lesetja Kganyago conveyed an optimistic yet tempered outlook during the second Monetary Policy Review held yesterday.
Opening with a tribute to the late former SARB Governor and former finance minister Tito Mboweni, Kganyago addressed the audience with words of encouragement, stating that there were now “signs that the storm is clearing.”
This statement marks a significant shift since the previous meeting in April, a time when South Africa was grappling with a precarious balance of inflationary concerns, fragile growth, and heightened political unease.
Currently, Kganyago said, prices were moderating without impacting output growth, there had been a cessation of load shedding and the unwinding election risks, and inflation was lower, having reached its mid-point target in August.
Yet, the Governor warned that “structural challenges remain”.
Kganyago said the central bank remained “committed to achieving the mandate of price stability”.
“Low and stable inflation will support growth of domestic economy as the storms of the past continue to pass,” he said.
In the published review, the bank noted that, despite the lowering of the repo rate by 25 basis points at the previous meeting in September, 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.
The bank also noted that general improvement in its 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.
It had expected inflation to remain stable at the midpoint of between 3-6% from next year, which has now been brought forward to the last quarter of this year.
“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,” the document said.
Headline inflation is expected to average 4.6% this year, down from the 5.1% the bank anticipated in March, and will “undershoot” the target midpoint from the third quarter of this year.
Over the next three quarters, headline inflation is expected to come in at the bottom half of the 3–6% target band, averaging 3.7%.
The economy is projected to expand by 1.1% this year, rising to 1.8% in 2026.
“The upgraded forecast is premised on the much improved electricity supply, alongside a better-functioning logistics sector and lower inflation and interest rates,” it said.
However, Dr Chris Loewald, a member of the MPC and head of the economic research department at the SARB, noted that the impact of easing constraints yet to reflect in economic data.
Loewald added that South Africa’s growth was lagging its emerging market peers in growth, reflecting low potential, productivity growth, and poor investment performance.
“We’ve had this lull, and we are trying to find out feet going forward,” said Loewald.
He said that the challenge is to stabilise inflation and expectations while also avoiding policy missteps that could cause inflation reversals.
Old Mutual Group chief economist, Johann Els, said Kganyago was very positive on economic indicators at a recent Parliamentary presentation, which indicates to him that rates were likely to come down by as much as 50 basis points next month.
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