The Reserve Bank raises rates by another 75 basis points

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

The rate decision was not unanimous, with three members voting for the announced 75 basis point hike, while two members preferred a 100 basis point rate hike.

The hike is the second consecutive rate adjustment up by 75 basis points. “The buyback rate level is now closer to the prevailing level before the start of the pandemic,” the bank said. Rates are now at the same levels as they were in January 2020, before heavy freezes hit the economy.

Economists and analysts surveyed by Finder were split, half expecting a move of 50 basis points and half expecting a 75 basis point increase. After a 75bp hike by the US Fed on Wednesday (Sept. 21), most were convinced that the SARB would go for a higher hike.

According to Reserve Bank Governor Lesetya Kganyago, 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 load shedding.

“While economic growth is slowing globally, inflation continues to surprise on the upside. Maintaining accommodation policies, supply shortages and other restrictions have significantly increased the prices of many goods, services and commodities, “she said.

Russia’s war in Ukraine continues to undermine the production and trade of a wide range of energy, food and other goods. Energy supply to the euro area is limited as winter approaches, putting families, businesses and governments to the test.

Taking these and other factors into account, the SARB forecast for global growth in 2022 is revised to 3.3% at its July meeting to 3% and 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 up to 8.1% for 2022 and only falling back. in the target range for 2023. The bank’s main inflation forecast for this year is unchanged at 6.5%. For 2023, headline inflation has been revised down to 5.3%.

Risks to the inflation outlook are valued on the upside, Kganyago said.

The SARB expects the South African economy to grow 1.9% this year, down from 2.0% at its July meeting. Growth in the first quarter of this year surprised on the upside, at 1.7%. In the second quarter, floods in KwaZulu Natal and a wider shedding of the load contributed to a 0.7% contraction.

Growth in the third and fourth quarters is expected to be 0.4% and 0.3% respectively.

“Private investment has strengthened in the wake of the recovery, but public sector investment remains weak. Household spending continues to support growth but is likely to soften next year. Tourism, hospitality and construction should see stronger recoveries as the year progresses, ”Kganyago said.

“In this context, the MPC has decided to increase the buyback rate by 75 basis points to 6.25% per annum, with effect from 23 September 2022,” he said.

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