The South African Reserve Bank’s Monetary Policy Committee announced a further increase in the repo rate. In a surprising move, the repo rate went up again by another 50 basis points yesterday. This increase means the rates are at their highest level since May 2009.
As per Jacaranda FM, Governor Lesetja Kganyago delivered the announcement on Thursday afternoon following the MPC meeting earlier this week.
Over the previous 18 months, the Reserve Bank increased the repo rate by 475 basis points to impede inflation.
The latest hike pushes the repo rate from 7.75% to 8.25%. The repo rate represents the rate at which the central bank lends money to commercial banks.
As a result, the prime lending rate has increased from 11.25% to 11.75%.
The rate adjustment comes on after Statistics South Africa’s recent data showing a decline in consumer inflation to an 11-month low of 6.8% in April, down from 7.1% in March.
Kganyago cautioned that South Africa’s growth prospects are being hampered by energy and logistical constraints, with load shedding alone projected to shave off 2% from the country’s GDP this year.
“Household spending is expected to grow very modestly in real terms, in line with a slight increase in real disposable income. Private sector investment remains positive, reflecting efforts to overcome challenges in energy and transportation supply,” Kganyago remarked.
“Our GDP growth forecasts for 2024 and 2025 remain unchanged from the previous meeting at 1.0% and 1.1% respectively,” Kganyago added.
He further acknowledged the persistent volatility in economic growth and emphasized the uncertain outlook for future growth.
“An improvement in logistics and a sustained reduction in load shedding, or increased energy supply from alternative sources, would significantly boost growth. The weak value of the rand offers some short-term benefits to the tradable sector,” Kganyago stated.
“Conversely, along with more moderate global growth rates and lower terms of trade, higher import prices and headline inflation pose downside risks to growth. Overall, the domestic and global prospects appear highly sensitive to new shocks. Currently, we consider the risks to the medium-term domestic growth outlook to be balanced.”
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