Business Reporter.
The South African Reserve Bank’s Monetary Policy Committee (MPC) has hiked the repurchase rate (repo rate) by 75 basis points.
The increase means that the repo rate will now be 6.25% per year from 23 September 2022, with prime now at 9.75%.
The MPC made the decision during its meeting on Wednesday. This was the fifth consecutive increment following a two 25 basis points hike in November and in January. The repo rate was hiked by 50 basis points at the May meeting. The MPC upped the ante with a 75 basis point rise at its July meeting.
Addressing media on Thursday, Reserve Bank Governor Lesetja Kganyago said three members of the MPC preferred the announced increase.
“Two members preferred a 100 basis points increase,” he said.
While the vote split indicates a more hawkish bias among the panellists, the benchmark is now close to 6.36% — the implied year-end 2023 rate according to the bank’s quarterly projection model, Bloomberg reported.
Kganyago stressed that the model is just a broad policy guide, but it does signal the committee is front-loading its fight against inflation, and there may be room to cool the hiking cycle, it said.
The central bank wants to more firmly anchor inflation expectations close to the 4.5% midpoint of its target range and “to increase confidence of hitting the inflation target in 2024,” Kganyago said.
“If inflation continues to moderate, then the South African Reserve Bank should be able to slow the pace of hiking, but much depends on what the Fed will do during the rest of the year,” said Carmen Nel, an economist and macroeconomic strategist at Matrix Fund Managers.
“We would expect a 50-basis-points hike in November, but with the balance of risks tipping toward 25 basis points rather than 75 basis points if the rand stabilizes.”
FNB CEO, Jacques Celliers, said: “We are witnessing a concerted effort by the South African Reserve Bank and numerous other central banks around the world to mitigate the effects of higher inflation. Although the effects of these actions may appear to be negative for consumers, the effects of escalating inflation are significantly more severe.
“This is an ideal time for consumers and businesses to take advantage of higher investment rates and minimise consumption-driven credit usage.”
He noted that the recent FNB/BER Consumer Confidence Index revealed a slight increase in consumer confidence in South Africa, and consumers have also experienced some relief due to decreases in fuel prices. “However, South Africa must act swiftly to address issues such as the intermittent power supply, which continues to derail the country’s economic growth prospects,” said Celliers.