South Africa Increases Repo Rate by 50 Basis Points to 4.75 %

The South African Reserve Bank’s Monetary Policy Committee (MPC) has once again increased the benchmark repo rate by 50 basis points to 4.75%.

The decision was in line with a Reuters poll published last week. Reuters said “South Africa‘s central bank on Thursday increased its main lending rate by the largest margin in more than six years as it stepped up efforts to fight inflation, sending the rand higher.”

The move was announced by SARB Governor Lesetja Kganyago, following an MPC meeting on Wednesday. The repo rate increase, to 4.7% per year, is effective from today, 20 May 2022.

The bank’s forecast of headline inflation for this year is revised higher to 5.9% (from 5.8%).

The Governor said this was primarily due to the higher food and fuel prices. Some of the key messages he delivered are:

• “As a result of higher global food prices, local food price inflation is also revised up and is now expected to be 6.6% in 2022 (up from 6.1%), and 5.6% in 2023 (up from 5.1%). Food price inflation is forecast to ease to 4.2% in 2024 (down from 4.4%).”
• “The Bank’s forecast of headline inflation for this year is revised higher to 5.9% (from 5.8%), primarily due to the higher food and fuel prices.”
• “While food prices will stay high, fuel price inflation should ease in 2023, helping headline inflation to fall to 5.0%, despite slightly higher core inflation. Headline inflation of 4.7% is now expected in 2024.”
• “Core inflation is forecast lower at 3.9% in 2022 (down from 4.2%) due to lower services price inflation.”

Kganyago said: “The economy is expected to grow by 1.7% in 2022, revised down from 2.0% at the time of the March meeting. This is due to a combination of short-term factors, including the flooding in Kwa-Zulu Natal and the continued electricity supply constraints.”

The economy is forecast to expand by 1.9% in both 2023 and 2024, he said.

The Governor said four members of the MPC preferred the announced increase and one member favoured a 25 basis point rise in the repo rate.

This is the third consecutive increment following a 25 basis points hike in November and in January. At that time, the rise was the first in almost three years following a series of repo rate cuts amid the COVID-19 pandemic.

– SAnews.gov.za and Reuters