{
  "title": "South Africa: Selected Issues",
  "publication": "IMF Staff Country Reports, January 30, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/cr/issues/2020/01/29/south-africa-selected-issues-49004",
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  "summary": "This Selected Issues paper studies the growth-inflation trade-off of monetary policy in South Africa. The combination of low growth and stubbornly high inflation expectations for a protracted period has complicated monetary policy decisions.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Publication date: January 30, 2020\n- Focus: the growth-inflation trade-off of monetary policy in South Africa.\n- Core question: whether anchoring inflation expectations at a lower level imposes a growth trade-off in the current environment of low growth and persistent inflation expectations."
    },
    {
      "heading": "Key findings",
      "content": "- There is limited growth trade-off of monetary policy efforts to anchor inflation expectations at a lower level at present.\n- Monetary policy lends limited support to growth that is dampened by structural issues.\n- During the 2010s, domestic demand growth responded little to monetary policy action.\n- The environment of weak growth, low interest rates, and relatively moderate inflation (expectations) could have muted monetary policy transmission.\n- Inflation expectations continue to respond to monetary policy action albeit to a lesser extent.\n- Monetary policy transmission through demand has weakened:\n  - demand growth does not systematically respond to monetary policy action, and\n  - core inflation does not systematically respond to monetary policy action.\n- The exchange rate and credibility channels appear to remain operational."
    },
    {
      "heading": "Policy recommendations and implications",
      "content": "- The South African Reserve Bank should continue its efforts of anchoring inflation and inflation expectations at a lower level because the growth trade-off appears limited at present.\n- Ultimately, constraints to economic growth need to be removed to restore stronger policy transmission and support growth."
    },
    {
      "heading": "Transmission channels and dynamics",
      "content": "- Weakened channels:\n  - Demand channel: muted—domestic demand growth showed little responsiveness to monetary policy during the 2010s.\n  - Core inflation channel: muted—core inflation does not systematically respond to monetary policy action.\n- Operational channels:\n  - Exchange rate channel: appears to remain operational.\n  - Credibility channel: appears to remain operational.\n- Contextual factors:\n  - Weak growth environment\n  - Low interest rates\n  - Relatively moderate inflation and inflation expectations"
    },
    {
      "heading": "Subjects and keywords (as listed)",
      "content": "- Subjects: Currencies, Depreciation, Foreign exchange, Inflation, Money, National accounts, Prices, Private investment, Production, Total factor productivity\n- Keywords: administered price inflation, Africa, CR, Currencies, demand growth, Depreciation, Global, growth-inflation tradeoff, Inflation, inflation expectation, ISCR, monetary policy, monetary policy action, Private investment, rand, rand volatility, Total factor productivity\n\n---\n\n Content in this bundle\n\n- South Africa: Selected Issues; IMF Country Report No. 20/34; January 9, 2020\n  - South Africa: Selected Issues; IMF Country Report No. 20/34; January 9, 2020 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - South Africa: Selected Issues; IMF Country Report No. 20/34; January 9, 2020 (PDF){rel=\"external\" type=\"application/pdf\"}"
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    "Published: January 30, 2020",
    "Series: IMF Staff Country Reports",
    "DOI: https://doi.org/10.5089/9781513528519.002",
    "Publication date: January 30, 2020",
    "Focus: the growth-inflation trade-off of monetary policy in South Africa.",
    "Core question: whether anchoring inflation expectations at a lower level imposes a growth trade-off in the current environment of low growth and persistent inflation expectations.",
    "There is limited growth trade-off of monetary policy efforts to anchor inflation expectations at a lower level at present.",
    "Monetary policy lends limited support to growth that is dampened by structural issues.",
    "During the 2010s, domestic demand growth responded little to monetary policy action.",
    "The environment of weak growth, low interest rates, and relatively moderate inflation (expectations) could have muted monetary policy transmission.",
    "Monetary policy transmission through demand has weakened:",
    "The exchange rate and credibility channels appear to remain operational.",
    "The South African Reserve Bank should continue its efforts of anchoring inflation and inflation expectations at a lower level because the growth trade-off appears limited at present.",
    "Ultimately, constraints to economic growth need to be removed to restore stronger policy transmission and support growth.",
    "Weakened channels:",
    "Operational channels:",
    "Contextual factors:",
    "Subjects: Currencies, Depreciation, Foreign exchange, Inflation, Money, National accounts, Prices, Private investment, Production, Total factor productivity",
    "Keywords: administered price inflation, Africa, CR, Currencies, demand growth, Depreciation, Global, growth-inflation tradeoff, Inflation, inflation expectation, ISCR, monetary policy, monetary policy action, Private investment, rand, rand volatility, Total factor productivity",
    "**South Africa: Selected Issues; IMF Country Report No. 20/34; January 9, 2020**"
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