South Africa

Reserve Bank increases interest rates by 25 basis points

Lesetja Kganyago

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has voted to increase interest rates by 25 basis points (bp), taking the country’s repo rate to 7.25%.

The latest rate increase marks the eighth hike in the current cycle, with the total adjustment being 375 basis points since the cycle started in November 2021.

The move was broadly in line with market expectations, with analysts and economists anticipating a 25bp or 50bp hike. Most forecast a 50bp hike.

According to Reserve Bank governor Lesetja Kganyago, the vote was not unanimous, with three members voting for a 25bp hike and two preferring a 50bp move.

Kganyago said the inflation outlook shows strain, with headline and core inflation likely to remain under pressure due to various conditions – with risks on the upside.

Positively, fuel price inflation is projected to come down. However, electricity price inflation is seen to be higher.

The governor said that food price inflation is also expected to remain high for the year, given the prevailing conditions.

Local electricity price inflation has been revised higher at 12.9% in 2023, 14.5% in 2024, and 10.9% in 2025.

Load shedding will keep the pressure going, affecting the cost of living and business generally in South Africa.

Headline inflation in 2022 came out at 6.9%. The bank’s forecast of headline inflation for 2023 is unchanged at 5.4% and is slightly higher at 4.8% for 2024.

Headline inflation is only expected to sustainably revert to the mid-point of the target range by the fourth quarter of 2024.

“Against this backdrop, the MPC decided to increase the repurchase rate by 25 basis points to 7.25% per year, with effect from 27 January 2023,” Kganyago said.

Speaking on the possible ‘terminal’ point for local interest rates, the governor said that the bank does not target interest rates.

Instead, it wants to stabilise prices, and interest rates are one tool the bank uses to do it.

Inflation, globally, is at an elevated level, and consumers are intolerant of high prices. The Central Bank’s responsibility is to bring price stability, hence the rate hike, Kganyago said.

“So we don’t know the terminal rate. We know that inflation is here, and it is a problem,” he said.


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