21 C
Johannesburg
Sunday, November 27, 2022
HomeBusinessSA Reserve Bank hikes repo rate to 7%

SA Reserve Bank hikes repo rate to 7%

SA Reserve Bank hikes repo rate to 7%

- Advertisement -

Lesetja Kganyago, South Africa's central bank governor, today announced the latest decision on interest rates in the country when the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) met for the last time this year.

Kganyago said the repo rate would increase by 75 basis points, taking it from 6.25% to 7%.

This means the prime lending rate will increase from 9.75% to 10.50%.

Kganyago said two members of the MPC preferred an increase of 50 basis points, while three others preferred the increase of 75 basis points.

The MPC decided to increase the repurchase rate by 75 basis points to 7%, with effect from the 25th of November 2022. Three members of the Committee preferred the announced increase. Two members preferred a 50 basis point increase. #SARBMPCNOV22 pic.twitter.com/veKZ8VVsQJ

— SA Reserve Bank (@SAReserveBank) November 24, 2022

Local, food price inflation is revised up due to the weaker exchange rate and is now expected to be 8.8% in 2022. Food inflation is revised higher to 6.2% in 2023 and unchanged at 4.2 % in 2024. In 2024 & 2025 we expect headline inflation of 4.5 #SARBMPCNOV22 pic.twitter.com/CsqoLkKRGm

— SA Reserve Bank (@SAReserveBank) November 24, 2022

Dr Andrew Golding, chief executive of the Pam Golding Property group, said the rate increase would be met with dismay.

Golding said: “Today’s announcement by the Monetary Policy Committee that the repo rate is increasing by a further 75bps will certainly be met with some dismay by consumers having to contend with the rising cost of living coupled with the dampening effect of ongoing load shedding on South Africa’s fragile economy.

“This seventh consecutive hike in the repo rate, ticking up to 7% means that the prime interest rate rises to 10.5%. However, while October's inflation rate disappointed, edging up to 7.6% from 7.5% in September, business confidence showed surprising resilience in the final quarter of the year with a reading of 38, marginally below 39 in Q3 2022. While admittedly a slightly weaker reading, there were concerns that recent bouts of prolonged load shedding might have caused a further sharp deterioration in business confidence.”

Before Kganyago’s announcement, a consortium of 18 out of 20 economists and academics from Finder.com suggested the SARB would most likely increase the interest rate.

According to Finder, more than half of their experts, when polled, expected the the central bank to hike rates by 75 basis points (bps).

WHY DOES THE BANK HIKE INTEREST RATES?

This may be a basic question to many but the SARB has been raising interest rates for most of 2022 to bring inflation within a target range.

Business Report’s article on inflation earlier today, indicated food prices surprisingly pressured consumer inflation to rise marginally after two consecutive months of decline, leaving SARB with no choice, but to hike its benchmark lending rate for the last time this year.

Another interest rates hike will make the cost of borrowing even higher, lifting the repurchase rate – the rate at which the SARB borrows money to commercial banks.

Data from Statistics South Africa (StatsSA) yesterday showed the headline inflation rate rose to 7.6% year-on-year in October, up from 7.5% in September.

This was the first time consumer prices had risen since July’s 7.8% peak, and was above market expectations of 7.4% and the upper limit of the SARB’s target range of 3% to 6%.

On a monthly basis, the consumer price index (CPI) rose by 0.4% in October, up from 0.1% the previous month.

On the economy

Kganyago said during his announcement that high inflation and weak economic growth continue to shape global conditions alongside monetary and fiscal policy responses.

“Russia’s war in Ukraine drags on, impairing trade and raising prices of a wide range of energy, food and other commodities. We now expect the SA economy to grow by 1.8% this year. Despite considerable volatility in monthly indicators, GDP growth of 0.4% is still expected in the third quarter. Fourth quarter growth is forecast to be only 0.1%, largely due to record load-shedding.”

Watch the governor make his announcement below:

BUSINESS REPORT

Original Article

- Advertisement -
RELATED ARTICLES
- Advertisment -

Most Popular

- Advertisment -