Reserve Bank governor Lesetja Kganyago told MPs on Thursday that SA’s economic and inflation outlook was showing several positive trends, including the considerable strengthening of the rand against the US dollar.
The economy was rebounding, inflation kept in check, and both consumer and business confidence was improving.
This had led to a stronger currency, which was contributing to disinflation. “There is now a positive vibe about SA. In spite of other emerging market currencies weakening, what we have seen is the SA rand has been strengthening. That means we have been able to flush out the bulk of the negative news ... embedded in SA financial asset prices,” said the governor.
Kganyago and his team briefed parliament’s standing committee on finance on the bank’s annual report.
“The picture [for inflation] going forward is a very positive one,” he said. The strengthening of the rand would have a positive effect on the inflation rate, which registered 4.4% in August.
“We expect the next two or three prints could have a three handle on them (presumably meaning inflation will be in the threes), and that provides policy space for us” to reduce the level of restrictiveness.
The bank cut the repo rate by 25 basis points to 8% in September. Kganyago said this was a reflection of what the bank thinks would be the trajectory in future. “The disinflation process is now firmly under way,” said the governor. In 2025 and 2026, inflation was expected to stabilise just below the 4.5% target, barring shocks.
Kganyago said growth was expected to rebound in the September quarter. He was optimistic about a more sustained recovery in the economy if the primary sectors, such as mining and agriculture, rebounded after previously dragging down growth, and if the secondary and tertiary sectors held to their growth path. The bank has forecast growth of 0.6% for the third quarter.
The potential growth rate of the economy had improved.
“Encouragingly, energy and logistical constraints have become less binding,” the governor said. He said that there had been six months without load-shedding. If this continued it would give investors confidence. The improved energy supply had raised medium-term growth forecasts. Kganyago also said that road transport was in decline and cheaper and more efficient usage of rail was rising.
He said consumers had renewed confidence in the economy and were returning to spend. They were also more confident about their financial position, which would support household consumption expenditure.
Household consumption would be spurred by pension fund withdrawals under the two-pot system of retirement and falling inflation, which would result in improved spending power and a rebound in disposable income. Households were spending on durables and semidurables.
A rebound in investment would benefit from embedded generation, which was expected to continue into 2025 and 2026.
Gross fixed capital formation across the board had suffered four quarters running of contraction, which Kganyago said would result in only modest projected GDP expansion in the medium term.
Kganyago said early indications suggested a rise in trade activity. SA’s trade surplus was also a positive factor.
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