The economic headwinds that South Africans continue to face show no signs of easing as the repurchase agreement rate (repo rate) has once again been increased.
This comes as the South African Reserve Bank (Sarb) increased the lending rate on Thursday.
Sarb governor, Lesetja Kganyago, raised the benchmark rate by a 75 basis points increase, following the three-day meeting of the Monetary Policy Committee (MPC).
This means the current repo rate of 5.5% will now increase to 6.25%.
The latest hike means that the prime lending rate in South Africa will increase to 9.75%, from 9%.
The increase comes after the last hike that was announced in July earlier this year, which saw a 75 basis point increase, which took the repo rate to 5.50% per year.
Kganyago said during his address, “Russia’s war in Ukraine continues to impair production and trade of a wide range of energy, food and other commodities. The supply of energy to the Euro Area is limited as winter approaches, placing immense strain on households, businesses and governments.”
Economic growth
“This year the Sarb expects the SA economy to grow by 1.9%, (from 2.0%). Growth in the first quarter of this year surprised to the upside, at 1.7%. In the second quarter, flooding in Kwa-Zulu Natal and more extensive load-shedding contributed to a contraction of 0.7%,” Kganyago said.
The MPC’s interest rate-raising cycle started in November 2021, after it saw a period of lowering the rate during the pandemic.
Earlier in May this year, the MPC increased the repurchase rate by 50 basis points to 4.75% per year.
Consumer prices in the country are likely to remain elevated, above the central bank’s target range for the remainder of the year, triggering a continuous rise in interest rates in spite of inflation softening for the first time since January.
The annual consumer inflation edged lower to 7.6% in August from 7.8% in July due to declining fuel prices as the global oil prices eased.
In August, the price of petrol declined by R1.32c and diesel by 88 cents per litre, respectively, in spite of the reintroduction of the temporary reduction in the general fuel levy of 75 cents per litre.
Statistics South Africa (Stats SA) yesterday said fuel prices decreased by 3.8% between July and August, with petrol falling by 5% and diesel by 0.9%, pushing the annual rate for fuel down to 43.2% from 56.2% in July.
However, Stats SA chief director for price statistics Patrick Kelly said food inflation remained elevated.
“In contrast to fuel, food inflation continued upwards. Annual food and non-alcoholic beverages inflation has climbed significantly from the recent low of 6% in April this year and has remained above 5% since October 2020,” Kelly said.
Ahead of the announcement, Frank Blackmore, Lead Economist at KPMG South Africa, said, “It is generally accepted that at least a 75 basis points increase in the repo rate will take place, increasing that rate from the current repo rate 5.5% to 6.25% and therefore the prime rate increasing from 9% currently to 9.75%. However, there is an outside chance that we could increase the report rate by 1 percentage point to 6.5% leaving prime at 10% over this period, this is because we can see inflation continues to increase throughout the year, ending July at 7.8% and it is expected that this inflation is going to increase into the 8% range for the remainder of the year, even though we expect month-on-month inflation to start slowing down, given the fact that your oil prices are back down to pre-Ukrainian invasion levels, and serial prices have also gone down to pre-Ukrainian levels. We also know that we need to keep in step with some of our trading partners and a lot of them are increasing with these sorts of increments at the same time.”
BUSINESS REPORT