The moderating role of monetary policy in the nexus between inflation and tourism demand in South Africa

Purpose While tourism is considered an engine of economic growth and development, macroeconomic crises, such as high inflation, can negatively impact the sector. However, monetary policy (MP) can play a significant role in mitigating the effects of inflation on tourism. This study aims to explore the moderating role of MP in the inflation–tourism demand nexus in South Africa. Design/methodology/approach The study uses data on international tourist arrivals to South Africa from 153 countries over 2014–2022. The study employs the ordinary least squares and generalised method of moments estimation methods to analyse the extended gravity model. Findings The results show that rising inflation lowers tourism demand in South Africa, making the country less attractive to tourists. Accommodative MP, characterised by low interest rates, is critical for overturning the negative impact of inflation on tourism. Sub-sample analyses further reveal significant patterns, such as the stronger influence of destination gross domestic product in attracting tourists from low-tourist origin countries and the significant interaction effects of macroeconomic variables in high-tourist origin countries. Practical implications South African policymakers should design suitable policy options (such as improved infrastructural development and flexible MP) to promote tourism development. Originality/value To the best of our knowledge, this is the first study to investigate the moderating role of MP in the inflation–tourism relationship, particularly in South Africa.