The South African Reserve Bank (SARB) on Thursday raised the REPO rate by 75 basis points.
Announcing the hike, Lesetja Kganyago, Governor of the SARB said: “The MPC decided to increase the repurchase rate by 75 basis points to 6.25% per year, with effect from the 23 rd of September 2022.”
He said three members of the MPC preferred the announced increase.
“Two members preferred a 100 basis points increase,” said Kganyago.
“The level of the repurchase rate is now closer to the level prevailing before the start of the pandemic.
“The revised repurchase rate path remains supportive of credit demand in the near term, while raising rates to levels more consistent with the current view of inflation risks.”
He said the aim of policy was to anchor inflation expectations more firmly around the mid-point of the target band and to increase confidence of hitting the inflation target in 2024.
Kganyago said the risks to inflation identified over the past year have been realised, pushing up South Africa’s headline inflation rate and inflation expectations.
“Average surveyed expectations of future inflation have increased to 6.5% for 2022 and 5.9% for 2023,” said Kganyago. .
“Expectations for inflation based on market surveys have increased to 6.7%.
“Long-term inflation expectations derived from the break-even rates in the bond market have moderated slightly to about 7%.”
On growth, Kganyago said this year the SARB expects the South African economy to grow by 1.9%, (from 2.0%).
“Growth in the first quarter of this year surprised to the upside, at 1.7%,” the SARB governor said.
“‘In the second quarter, flooding in Kwa-Zulu Natal and more extensive load-shedding contributed to a contraction of 0.7%.
“Growth in the third and fourth quarters is forecast to be 0.4% and 0.3%, respectively.
“The economy is forecast to expand by 1.4% in 2023 and by 1.7% in 2024, above previous projections.”‘
Kganyago said many developing economies exited the pandemic with less than full recovery and high debt levels.
“Russia’s war in Ukraine continues to impair production and trade of a wide range of energy, food and other commodities,” said Kganyago.
“The supply of energy to the Euro Area is limited as winter approaches, placing immense strain on households, businesses and governments.
“With rapid inflation and monetary policy normalization, the United States may also experience slower economic growth.
“While China’s recovery from the Covid-19 lockdowns has strengthened, economic growth is expected to remain below longer-term trends.”