1. Presentation made by the South African Reserve Bank to the Standing Committee on Finance
23 February 2010

2. Recent international economic developments

3. Leading global indicators continue to provide positive signs of economic recovery...

4. ...consistent with the improved January 2010 IMF projections...

5. ...while modestly higher consumer price inflation is projected.

6. Crude oil prices continue to fluctuate around fairly high levels.

7. The weakness in the US dollar continued to buoy an upward trend in international commodity prices.

8. In many countries the cycle of lowering policy interest rates appears to be ending, while a few central banks have started raising rates.

9. In many countries the cycle of lowering policy interest rates appears to be ending, while a few central banks have started raising rates.

10. Recent Domestic Economic Developments

11. South Africa’s real gross domestic product increased in the third quarter of 2009…

12. …due to positive growth in the real value added of the secondary and tertiary sectors.

13. Real gross domestic expenditure contracted at a slower pace in the third quarter of 2009.

14. Real consumption expenditure by households contracted further as disposable income continued to decline.

15. The ratio of household debt to disposable income remained at an elevated level.

16. Real final consumption expenditure by general government continued to trend higher...

17. …while real gross fixed capital formation declined further.

18. Firms continued to reduce their inventory levels.

19. The composite leading business cycle indicator continued its upward trend, while the coincident indicator appears to be bottoming out.

20. Total new vehicle sales showed signs of a recovery.

21. Mining production moved broadly sideways in the fourth quarter of 2009...

22. …while manufacturing production recovered further.

23. Consumer confidence picked up in the final quarter of 2009…

24. …alongside an improvement in business confidence.

25. Real retail trade sales remained subdued.

26. Formal non-agricultural employment decreased in the third quarter of 2009.

27. Wage settlements exceeded targeted inflation in 2009.

28. Growth in nominal unit labour cost continued to moderate.

29. Preliminary data suggest that the trade surplus widened further in the fourth quarter of 2009...

30. ...while the volume of both merchandise imports and exports picked up somewhat.

31. The net inflow of capital on the financial account of the balance of payments increased in the third quarter of 2009.

32. Growth in money supply slowed throughout 2009…

33. …and the deceleration in banks’ total loans and advances intensified in the fourth quarter of 2009.

34. Banks’ impaired advances continued to rise in recent months, although at a more moderate pace.

35. House prices started to recover recently.

36. Lower national government revenue and higher spending have resulted in a sizeable deficit.

37. Financial market developments

38. A wide gap remains between short-term interest rates in South Africa and in the United States.

39. Currently market participants expect a broadly sideways movement in short-term interest rates.

40. The money-market situation in South Africa has been stable throughout the international financial crisis.

41. Turnover in the domestic bond market has been subdued.

42. The public sector is stepping up its issues of bonds in the South African market.

43. Bond yields have risen during the past year.

44. Turnover in the domestic share market has recovered since early 2009...

45. …while share prices have trended higher.

46. South Africa’s overall balance of payments remained in surplus throughout 2009, but the pace of reserve accumulation decelerated.

47. Turnover in the South African foreign exchange market has partly recovered from low levels towards the end of 2008.

48. Positive investor sentiment supported the exchange rate of the rand during the fourth quarter of 2009.

49. Non-resident investors continued to display interest in South African securities.

50. Monetary policy developments

51. Producer price deflation turned to inflation in December 2009.

52. The targeted measure of inflation moderated to within the inflation target range in October and November before accelerating again in December...

53. …while administered price inflation accelerated considerably despite a drop in petrol prices.

54. The Monetary Policy Committee (MPC) has left the repurchase rate unchanged at 7,0 per cent since August 2009.

55. Main points from the February 2010 MPC Statement
The MPC statements inter alia outline the risks to the inflation outlook
Main points from the February 2010 MPC Statement
Demand-side pressure on inflation have been persistently weak, and pose no significant upside risk to the inflation outlook.
The domestic growth outlook has improved, but growth is expected to remain below potential.
The global environment remains benign from an inflation perspective.
Other supply side or exogenous factors are not expected to impart a significant upside risk to the inflation forecast.
International oil prices appear to have stabilised somewhat.
The outlook for food price inflation is favourable despite higher food prices in international markets.
The rand exchange rate has remained a positive factor from an inflation perspective.
The risk to the inflation outlook emanating from wage developments appears to have subsided somewhat.

56. Main points from the February 2010 MPC Statement
The MPC statements inter alia outline the risks to the inflation outlook
Main points from the February 2010 MPC Statement
Electricity price increases remain the single biggest risk to the inflation outlook.
The MPC noted that inflation is likely to remain close to the upper end of the target range over the forecast period, and was of the view that the risks to this outlook were fairly evenly balanced.
Against this backdrop it was decided to keep the repurchase rate unchanged at 7 per cent per annum.

57. Over the past decade interest rates have been more stable and lower than before.