qb march 2011 presentation by the south african reserve bank to the portfolio committee on finance...

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QB March 2011 Presentation by the Presentation by the South African Reserve South African Reserve Bank to the Portfolio Bank to the Portfolio Committee on Finance Committee on Finance Quarterly Bulletin March 2011 13 April 2011

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QB March 2011

Presentation by the South Presentation by the South African Reserve Bank to the African Reserve Bank to the

Portfolio Committee on Portfolio Committee on FinanceFinance

Quarterly Bulletin March 2011

13 April 2011

IntroductionIntroduction

Brent crude oil prices

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

DomesticDomesticeconomic economic

developmentsdevelopments

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

Real gross domestic product

……reflecting positive growth in the three main sectors of the economy 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 At the same time, domestic final demand continued to grow at a steady pacegrow at a steady pace

Final demand

While household debt increased somewhat, household While household debt increased somewhat, household debt and the debt service cost of households receded debt and the debt service cost of households receded

relative to disposable income 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 Nominal remuneration increases continued to exceed consumer price inflationconsumer price inflation

QB March 2011

Wages and targeted inflation

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

The current-account deficit narrowed significantly in the final The current-account deficit narrowed significantly in the final quarter of 2010 which largely reflected a larger trade surplus…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 in turn assisted by a surge in international commodity pricescommodity prices

International prices of selected South African export commodities

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

again in Marchagain in March

Effective exchange rate of the rand

Money, credit and Money, credit and financefinance

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

Growth in M3

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

M3 holdings of households and companies

Banks’ loans and advances started a modest recovery Banks’ loans and advances started a modest recovery during the second half of 2010during the second half of 2010

Total loans and advances to the private sector

Other loans and advances and instalment sale credit Other loans and advances and instalment sale credit and leasing finance and leasing finance recovered in the course of 2010recovered 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 The repo rate has been unchanged since November 2010, and market participants are expecting an increase in short-term interest rates by late 2011participants 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 The latest Budget projects the public-sector borrowing requirement to narrow over the medium termrequirement 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

Inflationexpectations

Pastinflation

Employ-ment

Real GDP

Importprices

Outputgap

Adminprices

Importprices

Outputgap

Consumer prices

Producerprices

Unitlabourcost

Averageremuneration

per worker

Oilprice

M3money real GDP

Exchangerate

Produc-tivity

Outputgap

GDP deflator

Inflation targetrate

Flow chart of the price formation process in the core model

Thank you!Thank you!