Road ahead filled with bumps as central bank hikes repo rate

The monetary policy committee (MPC) of the SA Reserve Bank has increased the repo rate by 25 basis points, taking the lending rate to 7.25%

Announcing the decision of the MPC on Thursday afternoon, Reserve Bank governor Lesetja Kganyago said three members of the committee voted for the 25 basis points increase while the other two had pushed for a 50 basis points rise.

“Domestic food price inflation continues to surprise higher. Loadshedding may have broader price effects on the cost of doing business and the cost of living,” Lesetja said.

“Our forecast for core inflation is somewhat lower at 5.2% in 2023 [down from 5.5%] and 4.7% in 2024 [down from 4.8%].”

He further said the economic and financial conditions are expected to remain more volatile for the foreseeable future, noting that in this uncertain environment, monetary policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook.

Given the scale of the ongoing loadshedding, Kganyago said the central bank estimates that it deducts as much as two percentage points from South Africa’s economic growth in 2023, compared with the previous estimate of 0.6 percentage points.

“It [loadshedding] is not only impacting growth, but it also has price effects in the sense that businesses and households have to try and find alternative energy, which raises the cost of living.

“That could result in inflationary costs. We have not been able to quantify the impact of loadshedding.”

The repo rate is the interest rate at which the Reserve Bank lends money to commercial banking groups. The prime lending rate has moved to 10.75% from 10.50% in 2022, which means consumers will pay more on their bonds and car installments.

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