The South African Reserve Bank’s Monetary Policy Committee (MPC) has hiked the repurchase rate (repo rate) by 50 basis points to 8.25%.
The increase means that the repo rate will now be 8.25% per year from 26 May 2023, with prime now at 11.75%.
This was announced by South African Reserve Bank (SARB) Governor Lesetja Kganyago during a media briefing in Pretoria on Thursday.
“At the current repurchase rate level, 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,” Kganyago said.
The SARB has raised the repo rate at least ten times since November 2021.
He said that the 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.
The Governor said that economic growth has been volatile for some time and prospects for growth remain uncertain.
He announced that the GDP growth forecast for 2024 and 2025 remains unchanged from the previous meeting, at 1.0% and 1.1%, respectively.
The SARB’s forecast for global growth in 2023 and 2024 is revised higher to 2.4% (from 2.0%), and to 2.7% (from 2.5%), respectively.
Meanwhile, the April World Economic Outlook of the International Monetary Fund (IMF) forecasts global growth at 2.8% and 3.0% for 2023 and 2024.
“For 2023, the Bank’s forecast for GDP growth is slightly higher than in March, at 0.3%. Energy and logistical constraints remain binding on South Africa’s growth outlook, limiting economic activity and increase costs. We estimate loadshedding alone to deduct 2 percentage points from growth this year,” he said.
Kganyago emphasised that an improvement in logistics and a sustained reduction in load-shedding, or increased energy supply from alternative sources, would significantly raise growth.