QB March 2011 Presentation by the South African Reserve Bank to the Portfolio Committee on Finance Quarterly Bulletin March April 2011

Introduction

Brent crude oil prices International oil prices have risen sharply in the wake of tensions in the Middle East and North Africa

Domestic economic developments

Real gross domestic production increased further in the fourth quarter of 2010… Real gross domestic product

…reflecting positive growth in the three main sectors of the economy Real gross domestic product by main sector

At the same time, domestic final demand continued to grow at a steady pace Final demand

While household debt increased somewhat, household debt and the debt service cost of households receded relative to disposable income Household debt and debt-service ratios

The pace of employment creation picked up in the fourth quarter of 2010 Formal non-agricultural employment Total Private sector Public sector

Nominal remuneration increases continued to exceed consumer price inflation QB March 2011 Wages and targeted inflation

Consumer goods price inflation as well as producer price inflation accelerated recently

The current-account deficit narrowed significantly in the final quarter of 2010 which largely reflected a larger trade surplus… Balance of payments: Current account Balance on current account Service, income and current transfer account Trade account (exports minus imports)

…in turn assisted by a surge in international commodity prices International prices of selected South African export commodities

The net inward movement of foreign capital shrank notably in the fourth quarter of 2010 Net financial transactions not related to reserves

The nominal effective exchange rate of the rand declined somewhat in January and February 2011 before strengthening again in March Effective exchange rate of the rand

Money, credit and finance

Growth in money supply regained some momentum during the second half of 2010 Growth in M3

M3 deposit holdings of the corporate sector picked up noticeably in 2010 while that of the household sector remained subdued M3 holdings of households and companies

Banks’ loans and advances started a modest recovery during the second half of 2010 Total loans and advances to the private sector

Other loans and advances and instalment sale credit and leasing finance recovered in the course of 2010 Loans and advances to the private sector by type

The repo rate has been unchanged since November 2010, and market participants are expecting an increase in short-term interest rates by late 2011 Money-market rates

Non-residents have consistently been net sellers of RSA bonds from October 2010 Annual cumulative net purchases of bonds by non-residents

Share prices trended higher from August 2010 to March 2011 Share and commodity prices

Still no sign of a quick recovery in house prices House prices

Retail bonds have grown in popularity, with people of pensionable and near pensionable age constituting the largest category of investors Amount invested in South African retail bonds by age of investor, February 2011

The latest Budget projects the public-sector borrowing requirement to narrow over the medium term Public-sector borrowing requirement* Reasons: - Cyclical narrowing as tax collections rise with a stronger economy - Smaller borrowing requirement of public corporations

QB December 2010

Box on impact of oil price on inflation

A sustained increase of $10 per barrel results in an increase in inflation of around 0,3 percentage points in the first quarter… …rising to slightly more than 0,6 percentage points after four quarters Response of consumer prices to an oil price increase of US$10 per barrel

Inflation expectations Past inflation Employ- ment Real GDP Import prices Output gap Admin prices Import prices Output gap Consumer prices Producer prices Unit labour cost Average remuneration per worker Oil price M3 money real GDP Exchange rate Produc- tivity Output gap GDP deflator Inflation target rate Flow chart of the price formation process in the core model

Thank you!