The South African Reserve Bank is raising rates

The Monetary Policy Committee (MPC) of the South African Reserve Bank has decided to increase the repo rate to 4.25% per annum.

Reserve Bank Governor Lesetja Kganyago said in a statement on Thursday afternoon (March 24) that the rate hike comes against a backdrop of higher global and local inflation.

Three members of the commission prefer the announced increase and two members prefer an increase of 50 basis points in the repo rate.

The Quarterly Projection Model (QPM) implied policy pathway, seen in the inflation forecast, indicates a gradual normalization until 2024. As usual, the QPM’s repo rate projection remains a broad policy guide, changing from meeting to meeting in response to new data and risks.

“Economic and financial conditions are expected to accelerate in the foreseeable future. In this uncertain environment, policy decisions will continue to be data – dependent and sensitive to the balancing of perspectives.

The MPC will try by seeing temporary price shocks and focusing on potential effects of the second round and the risks of anchoring inflation expectations, Kganyago said.

“Better anchored expectations of future inflation can support lower interest rates and can be achieved by reaching a prudent level of public debt, increasing energy supply, moderating administered price inflation and keeping wage growth in line with productivity gains.

“Such steps will improve the effectiveness of monetary policy and its transfer to the wider economy,” he said.

GDP growth

GDP growth is expected to be 1.9% in both 2023 and 2024. Economic growth at these rates remains well above a low rate of potential growth yet limited by load shedding and policy uncertainty, Kganyago said.

“Investment by the government sector has weakened significantly in recent years and that of public companies is expected to be very modest,” he said.

“Household spending remains supportive, as a result of good growth in disposable income, rising asset prices, and low interest rates, while private investment also appears to be more resilient than previously expected.

Overall, and after revisions, the risks to domestic growth over the medium term are considered to be balanced, he said.

“With the current low rate of potential growth and the upward revision of GDP growth for 2022 and 2023, the output gap closes faster over the forecast period compared to the January meeting. After the third quarter of 2023, the output gap is expected to be positive will be. “

Core inflation

Electricity and other administered prices continue to present short- and medium-term risks, he said.

“Higher diesel and coal prices could result in upward revisions of our electricity price forecast for 2023. Given sub-inflationary assumptions for wage growth in the public sector and higher inflation of petrol and food prices, much risk is associated with a still moderate nominal wage forecast. “

Core inflation is expected to increase to 4.2% in 2022 (to 3.8%), to 5% in 2023 (from 4.4%), before declining slightly to 4.7% in 2024 (from 4.5%).

Price inflation for core goods and services is projected to rise higher over the entire horizon, and price inflation for services is above the midpoint of the target by the fourth quarter of this year, the governor said.

To read: 9 things that are now more expensive in South Africa – and how it will affect your shopping bill

The South African Reserve Bank is raising rates

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