SARB surprises with 50 basis point rate hike
The South African Reserve Bank's Monetary Policy Committee has tightened the noose around the necks of indebted South Africans by hiking the repo rate by another 50 basis points.
Most economists expected a 25 basis point hike.
StatsSA announced a week ago that the headline consumer price index rose at an annual rate of 7% in February, up from 6.9% in January.
Governor Lesetja Kganyago announced on Thursday afternoon following this week's Monetary Policy Committee meeting.
Kganyago says three members of the committee preferred the announced 75 basis point increase, while two members preferred a 50 basis point increase.
The increase pushes the repo rate, at which the central bank loans money to commercial banks from 7,25% to 7,75%, effective from Friday.
This moves prime lending from 10,75% to 11.25%.
Kganyago said the economic growth has been volatile for some time and prospects for growth appear even more uncertain than normal.
"An improvement in logistics and a sustained reduction in load-shedding or increased energy supply from alternative sources would significantly raise growth. Further upside risks to growth could emerge from a stronger recovery in China, if commodity export prices rise. Downside risks however emanate from more modest global growth rates and the lower terms of trade and trade volumes that would follow.
"Overall, the risks to the medium-term domestic growth outlook are assessed to be balanced. Nonetheless, the domestic and global outlook appears to be highly sensitive to new shocks. Core inflation remains high in much of the world and financial vulnerabilities have re-emerged to create new headwinds," said Kganyago.
Kganyago said the rand has generally weakened over the past year and even further in recent weeks.
"Load shedding may additionally have broader price effects on the cost of doing business and the cost of living, in particular as diesel consumption increases. Given sticky petrol and higher food price inflation, the considerable risk still attaches to the forecast for average salaries.
"Interest rate levels in major economies are higher than were projected in January, averaging 3.8% in 2023, 3.5% in 2024, and unchanged at 2.4% in 2025.
South Africa's risk premium is sharply higher and will likely remain elevated over the forecast period. Given load shedding, upside inflation risks, and larger external financing needs, further currency weakness appears likely."
