By Carin Smith
Cape Town – South African Reserve Bank (Sarb) governor Lesetja Kganyago on Thursday announced a 50 basis-point increase in the repo rate to 6.75%, in line with the consensus for a 50 basis-point hike.
This means the prime lending rate will now be 10.25%.
Lending rates have risen by a cumulative 175 basis points since late January 2014.
Kganyago said the Sarb’s latest inflation forecast has deteriorated. Inflation is still expected to breach the upper end of the target and remain outside the target for the entire focus area.
The deterioration in forecast is mainly due to the exchange rate assumption and expected higher labour costs, he said at the end of the Sarb’s first monetary policy committee meeting for the year.
The rand firmed 0.67% to R16.33 from the previous close.
Jacques du Toit, senior economist at Absa, said the MPC’s decision to increase the repo rate again after announcing a rate hike in November, was taken against the background of factors such as the sharply weaker rand exchange since late last year, expected rising food prices in the near term due to the negative impact of the severe drought on agricultural production and the possibility of above-inflation electricity price hikes this year.
Ahead of the MPC meeting debt experts warned that an increase would be devastating for consumers, especially those already burdened by a high level of indebtedness.
DebtBusters CEO Ian Wason said consumers need to prepare themselves and find other means to pay their monthly expenses as opposed to taking out loans. DebtBusters’ latest Debtometer Report shows that its clients require 102% of their net income to service their debt before paying for any living expenses.
He said middle- and-upper income earners in particular should watch out for higher living expenses and to factor these into their monthly household budgets. – Fin24
South African reserve bank raises repo rate as inflation outlook worsens
PRETORIA, Jan 28 (Reuters) – South Africa’s Reserve Bank raised its benchmark repo rate by half a percentage point as expected on Thursday, saying the outlook for inflation had deteriorated significantly even as economic growth slowed.
Nineteen of 31 economists polled by Reuters said the central bank would hike interest rates by 50 basis points, while 11 predicted a more moderate 25 basis point increment.
Thursday’s decision is the first time since July 2014 that the Bank has added 50 basis points rather than the 25 basis point additions it has made since then.
“Previously, the committee expressed concerns about the growing risks to the inflation outlook, mainly due to exchange rate and food price risks,” Governor Lesetja Kganyago told a news conference after the bank’s Monetary Policy Committee held its first meeting of the year.
“These risks appear to be materialising and have contributed to the significant deterioration of the inflation forecast.”
The rand fell about 25 percent against the dollar last year and has given up another 6 percent so far in 2016, weighed down by concerns over sluggish growth in African’s most advanced economy, as well as a slowdown in China.