The South African Reserve Bank’s Monetary Policy Committee (MPC) has announced an increase of 50 basis points in the repurchase rate, bringing it to 8.25% per year, effective from Friday.
The surge in the rates has been attributed to a range of challenges, including recurring power outages, a sluggish economy, and a historically weak currency.
Speaking during a media briefing on Thursday, Reserve Bank Governor Lesetja Kganyago emphasised that the decision to increase interest rates demonstrates the committee’s commitment to addressing high inflation and the potential risks it poses.
He said the current repurchase rate level indicates a restrictive policy stance, aligning with the urgency to curb inflation.
On Wednesday, Statistics South Africa released its latest data, revealing a drop in the annual inflation rate to 6.8% in April, marking the lowest reading since May 2022.
However, certain sectors, notably food and non-alcoholic beverages, continue to experience price pressures, tempering the overall positive trend.
Said Kganyago: “At the current repurchase rate level, the policy is restrictive, consistent with elevated inflation and risks. The policy stance aims to anchor inflation expectations more firmly around the mid-point of the target band and to increase confidence of attaining the inflation target sustainably over time.
“Guiding inflation back towards the mid-point of the target band can reduce the economic costs of high inflation and achieve lower interest rates in the future.
“Reaching a prudent public debt level, increasing the supply of energy, moderating administered price inflation, and keeping wage growth in line with productivity gains would enhance the effectiveness of monetary policy and its transmission to the broader economy,” he added.
Kganyago said the MPC’s decision to raise the repurchase rate demonstrates its commitment to maintaining price stability and reining in inflationary pressures. By taking decisive action, the committee aims to foster a more favorable economic climate, reduce the costs associated with high inflation, and pave the way for a sustainable and prosperous future.
“As usual, the repo rate projection from the QPM remains a broad policy guide, changing from meeting to meeting in response to new data and risks. Economic and financial conditions are expected to remain more volatile for the foreseeable future. In this uncertain environment, monetary policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook.
“The MPC will seek to look through temporary price shocks and focus on potential second-round effects and the risks of de-anchoring inflation expectations. The Bank will continue to closely monitor funding markets for stress,” he said.
Also read: Uncertainties and anxiety mounts as interest rate hike looms
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