Reserve Bank hikes rates by another 50 basis points

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has elected to hike South Africa’s interest rates by another 50 basis points. The decision was unanimous.

This takes the repo rate up to 8.25%, with the prime lending rate now at 11.75%. It marks the tenth consecutive interest rate hike since the central bank started the hike cycle in November 2021.

It has hiked rates by a total of 475 basis points since then.

The move was broadly in line with market expectations, with most analysts and economists anticipating the move at 50 basis points.

According to Reserve Bank governor Lesetja Kganyago, the move to hike rates comes amid persistently high consumer price inflation and a sluggish economy – exacerbated by severe load shedding.

Risks to inflation are viewed to the upside, and the headline rate is expected to stick outside the target range until the third quarter of this year, the governor said.

For 2023, the bank’s forecast for GDP growth is slightly higher than in March, at 0.3%.

“Energy and logistical constraints remain binding on South Africa’s growth outlook, limiting economic activity and increasing costs. We estimate load shedding alone to deduct two percentage points from growth this year,” Kganyago said.

Economic growth has been volatile for some time, and prospects for growth remain uncertain, the governor said, adding that an improvement in logistics and a sustained reduction in load-shedding, or increased energy supply from alternative sources, would significantly raise growth.

Load shedding in particular, remains a sore point.

The governor noted that increased load shedding keeps putting pressure on inflation, particularly having a significant impact on the cost of doing business – especially when it comes to the additional diesel costs they will have to incur to mitigate outages.

“Headline inflation is forecast to remain above the upper end of the inflation target range until the third quarter of this year, and will only sustainably revert to the mid-point of the target range by the second quarter of 2025,” he said.

“Against this backdrop, the MPC decided to increase the repurchase rate by 50 basis points to 8.25% per year, with effect from the 26th of May 2023. The decision was unanimous.”

Kganyago said that the policy has now moved from an accommodative status to a restrictive status.

“At the current repurchase rate level, policy is restrictive, consistent with elevated inflation and risks,” he said, adding that the situation will remain as such until the situation changes and inflation returns to the mid-point of the target range.

“Guiding inflation back towards the mid-point of the target band can reduce the economic costs of high inflation and achieve lower interest rates in the future,” he said.

The full statement can be read below:

Read: Risk experts sound the alarm over stage 8 load shedding in South Africa