Moneyweb
On Thursday, the South African Reserve Bank (Sarb) hiked its repo rate by another 50 basis points (bps), taking the benchmark rate to 8.25% – the steepest level since 2009.
This is the 10th increase in 18 months and takes the prime lending rate of commercial banks to 11.75%.
It is the second 50bp hike in a row after the Sarb unexpectedly increased the repo rate by a higher margin at its March meeting.
Sarb governor Lesetja Kganyago announced the rate hike following the conclusion of the bank’s third Monetary Policy Committee (MPC) meeting this year. The decision was unanimous among the five members of the MPC.
The 50bp increase was expected by the majority of market watchers ahead of the meeting, following the recent weakening of the rand and geopolitical risks stemming from South Africa’s ties with Russia, which is still at war with Ukraine.
The increase comes a day after the release of inflation data, which showed that the consumer price index (CPI) cooled to 6.8% in April.
While inflation may be showing signs of abating, it is still hovering above the Sarb’s target band of 3%-6%, and food price inflation is still in the double digits. South Africa’s energy crisis, which has worsened this year, is also weighing heavily on the country’s already strained economy, presenting more inflationary risks.
Delivering the MPC statement, Kganyago said load shedding alone will shave 2% from growth this year, although adding that the bank now expects slightly higher than previously forecast growth of 0.3%.
"Energy and logistical constraints remain binding on South Africa’s growth outlook, limiting economic activity and (increasing) costs," he said.
"An improvement in logistics and a sustained reduction in load-shedding, or increased energy supply from alternative sources, would significantly raise growth,” Kganyago said.
