South Africa’s economy is accelerating and confidence is booming. In the third quarter, output was up 5.6%, the fastest pace of expansion in eight years. Since 2003, the Reserve Bank – the central bank – has cut interest rates on its key overnight rate to banks by 600 basis points (bp) to 7.5%, stimulating vigorous retail sales and a surge in property prices.
Reserve Bank governor Tito Mboweni’s success has been to read the inflation signals correctly, announcing monetary policy changes that have so far proved spot on despite the one to two-year transmission lag between adjusting interest rates and the impact of the adjustment on the real economy. A surprise 50bp cut in August has won favour with the markets as inflation forecasts remain benign.
