South Africa’s central bank raised interest rates by three-quarters of a percentage point for a second straight meeting, fully unwinding its extraordinary pandemic-era stimulus measures.
The monetary policy committee raised the repurchase rate to 6.25% from 5.5%, Governor Lesetja Kganyago said Thursday in an online briefing.
The move returns the benchmark to its January 2020 level — before stop-start coronavirus lockdowns, and supply-chain disruptions prompted unprecedented easing.
It also aligns the South African Reserve Bank with its counterparts around the world that are unleashing the most aggressive monetary policy tightening in decades to combat the worst global inflation shock in a generation.
Of the five members on the panel, three voted for the 75 basis-point increase, and two preferred a 100-basis-point hike. The outcome matched the median estimate of economists in two separate Bloomberg surveys.
South Africa’s rand held gains after the central bank’s decision. The currency gained 1% to 17.5744 per US dollar as of 3:16 p.m. in Johannesburg. Yields on benchmark government debt extended their decline, falling 7 basis points from Wednesday’s close to 10.89%.
Comment from Rhys Dyer, CEO of Ooba Group
Today’s interest rate hike marks the second 75 basis points-hike and the fifth increase in the prime lending rate this year – pinning the interest rate at 9.75%.
Rhys Dyer, CEO of Ooba Group, argued that increases such as these are to be expected following the historically low interest rates offered during the pandemic.
Dyer said first-time homebuyers are responding to the rising interest rates by opting for a longer-term home loan to improve their affordability.
“There’s a sharp uptick in 30-year mortgages by first-time homebuyers – now at 26% of all home loans processed by Ooba in Q2 ’22 versus 16% in Q2 ’21,” he said.
Commenting on the impact on consumers, he said the monthly repayment on a home loan of R1 million at the new interest rate of 9.75% over a 20-year term would increase by R488. A R1.5 million home loan will increase by R732.
“Despite the weakened economy’s impact on consumers, South Africans continue to move and invest in property,” Dyer said.
Property sales are driven by homeownership preference, semigration, and relocation due to a new life stage.