Reserve Bank hikes repo rate by 50 basis points

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

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Repo rate up by 50 basis points

This takes the repo rate up to 8.25%, with the prime lending rate now at 11.75%. It marks the 10th consecutive interest rate hike since the central bank started the hike cycle in November 2021.

The central bank has increased 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.

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According to Reserve Bank governor Lesetja Kganyago, the move to hike interest 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 repo rate is expected to stick outside the target range until the third quarter of this year, the governor said.

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2023 GDP

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 in the repo rate growth this year,” Kganyago said.

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Economic growth has been volatile for some time, and prospects for growth remain uncertain, said the governor.

An improvement in logistics and a sustained reduction in load-shedding, or increased energy supply from alternative sources, would significantly raise growth in the repo rate. Load shedding in particular, remains a sore point.

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