By Lehlohonolo Lehana.
The SA Reserve Bank’s monetary policy committee hiked interest rates by 50 basis points. This is in line with what many economists and the market expected.
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.
The members of monetary policy committee all voted unanimously in favour of the hike.
The central bank has now hiked rates by 475 basis points since then.
On a new home loan of R2-million at the prime rate, the latest increase hikes the monthly instalment by around R690. Since November 2021, monthly payments on a R2-million home loan are almost R6 200 more expensive due to a raft of rate hikes.
South Africa’s annual inflation rate reached an 11-month low in April, cooling to 6.80% from 7.10% in March, it was announced on Tuesday. Inflation slowed by more than economists expected.
However, food inflation continued to remain sticky around 14-year highs, at 13.90% – from 14% the previous month.
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.