Reserve Bank raises rates by another 75 basis points

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The South African Reserve Bank has raised interest rates by 75 basis points, bringing the repo rate to 6.25% per annum – back to pre-Covid-19 levels.

The rate decision was not unanimous, with three members voting in favor of the announced 75 basis point hike, while two members favoring a 100 basis point rate hike.

The increase is the second consecutive upward rate adjustment of 75 basis points. “The level of the repurchase interest rate is now closer to pre-pandemic levels,” the bank said. Rates are now at the same level as they were in January 2020, before harsh lockdowns hit the economy.

Economists and analysts consulted by Finder were divided, with half anticipating a 50 bp move and the other half anticipating a 75 bp rise. After a 75 basis point hike by the US Fed on Wednesday (September 21), most were confident that the SARB would opt for the higher rate hike.

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Reserve Bank governor Lesetja Kganyago said the rate hike stems from a general slowdown in global growth and high inflation due to the war in Ukraine, as well as local factors, including tax shedding.

“As global economic growth slows, inflation continues to surprise positively. Ongoing policy adjustment, supply shortages and other constraints have pushed the prices of many goods, services and commodities sharply,” he said.

Russia’s war in Ukraine continues to hamper production and trade in a wide variety of energy, food and other goods. Energy supplies to the eurozone are being curtailed as winter approaches, putting enormous pressure on households, businesses and governments.

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Taking these and other factors into account, the SARB’s forecast for global growth in 2022 is being revised down from 3.3% at the July meeting to 3% and reduced to 2% (from 2.5%) for 2023.

Locally, fuel prices – and thus fuel price inflation – have fallen in recent months, but food price inflation remains high, revised upwards to 8.1% by 2022 and only back within its target range for 2023. The bank’s forecast of headline inflation for unchanged this year at 6.5%. For 2023, headline inflation will be revised downwards to 5.3%.

Risks to the inflation outlook are viewed positively, Kganyago said.

This year, the SARB expects the South African economy to grow by 1.9%, up from 2.0% at the July meeting. Growth in the first quarter of this year surprised positively, at 1.7%. In the second quarter, flooding in KwaZulu Natal and more extensive shutdowns contributed to a contraction of 0.7%.

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Growth in the third and fourth quarters is estimated at 0.4% and 0.3% respectively.

“Private investment has been boosted by the recovery, but public sector investment remains weak. Household spending continues to support growth, but is likely to decline next year. Tourism, hospitality and construction should recover more strongly as the year progresses,” Kganyago said.

“Against this background, the MPC has decided to raise the repurchase rate by 75 basis points to 6.25% per annum, effective September 23, 2022,” he said.


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