South African Reserve Bank Hikes Rates

South African Reserve Bank Hikes Rates (News Central TV)

The South African Reserve Bank’s Monetary Policy Committee (MPC) has decided to raise the repo rate to 3.75% per annum.

Reserve Bank governor Lesetja Kganyago said in a statement on Thursday afternoon that the rate hike comes against a backdrop of higher inflation, and a host of local issues like load shedding, that are having long-term effects on the economy.

Economic growth projections have been reviewed downwards from 5.3% to 5.2% for 2021. This reflects “the larger negative effect on output than was previously estimated from the July unrest and other factors,” he said.

Reserve Bank governor Lesetja Kganyago

Kganyago said although the domestic economy grew strongly in the first half of 2021, the second half of the year is expected to show mixed results.

Quarterly, growth for the third quarter of 2021 has been revised to -2.5% from -1.2% before. However, growth in the fourth quarter is forecast at 2.6% versus 1.6% before.

“Despite these quarterly revisions, the annual growth rate in GDP for 2021 reflects a healthy bounceback from the economic effects of the pandemic. In the next two years, economic growth is expected to align with a low rate of potential growth,” he said.

There has been pressure on local inflation across the world, driven by uncertainty in global markets and higher commodity prices.

Oil prices are 68% higher, year to date, compared to 2020. Global uncertainty over inflation has also negatively affected the rand/dollar exchange rate, which has weakened since the September meeting.

The July unrest, the pandemic, and ongoing energy supply constraints, which are likely to have lasting effects on investor confidence and job creation have continued to impede recovery in labour-intensive sectors hardest hit by the lockdowns in South Africa.

Given this backdrop, Kganyago said that the MPC voted to raise the repo rate by 25 basis points, to 3.75%.

The vote was close, with three members of the committee preferring an increase and two members preferred an unchanged stance.

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