Reserve Bank raises repo rate to 7%
Governor Lesetja Kganyago says rising fuel and energy costs, global instability, and inflation risks drove the decision.
The next car instalment and bond repayment will be higher for most consumers.
The repo rate has been hiked by 25 basis points to 7 per cent.
It pushes the prime lending rate up to 10.5%.
Repo rate hike linked to fuel
The move follows April’s inflation figure of 4%, driven largely by rising fuel and energy costs.
Making the announcement on Thursday, South African Reserve Bank Governor Lesetja Kganyago said the broader global shock caused by instability in the Gulf and its impact on oil prices has placed renewed pressure on inflation and economic growth.
“We have already had one global inflation surge this decade, and we may well be starting another.”
Kganyago says before the latest shock, the economy appeared to be gaining momentum, with incoming data largely positive.
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“We face a painful combination of higher global uncertainty and reduced disposable income. This will hit both investment and household consumption, which have been our main growth drivers. The recent floods in the Western Cape, Eastern Cape, and North West provinces have also done severe localised damage.
“The frequency of these extreme weather events underscores the threat from climate change.”
He said the MPC agreed that inflation risks had intensified and that large, overlapping global shocks were likely to trigger second-round effects requiring a monetary policy response.
“Our decision was aimed at managing risks and ensuring that inflation returns to target. The forecast from our quarterly projection model shows one hike this quarter. As inflation falls later in the forecast, our model then has rates increasing again towards neutral levels.”
The increase will come into effect on Friday.
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