The South African Reserve Bank continues to be in a tightening cycle and has raised the repurchase rate by a cumulative one percentage point since early 2014 to its current level of 6 per cent. Despite this tightening, monetary policy remains broadly accommodating, with the real repurchase rate remaining close to 0 per cent.
The public sector has, over the past six years, stepped up its capital expenditure to alleviate the bottlenecks in the economy – a welcome development. South African households have simultaneously raised their consumption expenditure. Both capital and consumption spending have a high import content, directly or indirectly, with the result that imports have been elevated.