Moneyweb
South Africa’s repo rate has been pushed sharply up, by 75 basis points (bps), the steepest hike since September 2002.
The rate hike was announced by South African Reserve Bank Governor Lesetja Kganyago on Thursday, moving to front-load a steeper increase to rein in resurgent inflation.
The 75bp hike brings the repo rate to 5.5%.
Three members of the MPC voted for a 75bp hike, one for a 100bp hike, and one for a 50bp increase.
While many economists originally predicted a 50bp hike for the Sarb’s July Monetary Policy Committee (MPC) meeting, that was before the higher-than-expected June headline inflation figure of 7.4% was published on Wednesday.
Kganyago added that achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation,and keeping wage growth in line with productivity gains would enhance the effectiveness of monetary policy and its transmission to the broader economy
Highlights:
GDP is expected to contract by 1.1% in Q2. Growth in Q3 and Q4 forecast to be 0.7% and 0.4%, respectively. Economy forecast to expand by 1.3% in 2023 and by 1.5% in 2024 (Previously 1.9% for both years).
Nominal wages forecast to rise by 5.6% in 2022, 7.3% in 2023, and 5.7% in 2024.
Oil prices currently sit at around US$106/ barrel; Sarb expects them to average US$108/barrel for 2022, US$92/barrel in 2023 & US$85/barrel in 2024.
Inflation continues to surprise on the upside:
Food price inflation seen at 7.4% in 2022; 6.2% in 2023, 4.2% in 2024
Core inflation forecast higher, at 4.3% in 2022 (up from 3.9%), rising to 5.6% (from 5.1%) in 2023 and 4.9% in 2024 (from 4.8%).
Bank’s forecast of headline inflation for 2022 revised higher to 6.5%. Higher food, fuel, and core inflation expected to keep headline inflation elevated at 5.7% in 2023; 4.7% is expected in 2024 (unchanged since May meeting).
