The South African Reserve Bank’s Monetary Policy Committee (MPC) has raised the repo rate to 4.25% per annum.
Reserve Bank governor Lesetja Kganyago said in a statement on Thursday afternoon March 24, that the rate hike comes against a backdrop of higher global and local inflation.
The hike in the repurchase agreement rate by another 25 basis points pushes the repo rate to 4.25% and the prime rate to 7.75%.
Following the prime rate that went from 10% in 2019 to 7% last year, the bank began to hike rates again late last year, followed by another 25 basis point increase in January.
According to the MPC the move is geared towards subduing inflation, which has in recent times, been heating up.
It was reported that consumer inflation in February reached 5.7% – close to the upper limit of the Reserve Bank’s target range of 3% to 6%.
The rising prices of oil (fuel and diesel) for more than one-third over the past year, has been cited as one of the major causes of this development.
Further, the recent crisis around the world has triggered large increases in commodity prices, adding to the inflationary pressure in South Africa in coming months.
It is worthy of note, that the bank has also hiked its expectation for South African economy growth – which is now expected to be 2.0% in 2022, revised up from 1.7% at the time of the MPC’s January meeting.
“This is due to a combination of factors, including stronger growth in 2021 and higher commodity export prices. Growth in output in the first quarter of this year is likely to be significantly stronger than expected at the time of the January meeting,” Reserve Bank Governor Lesetja Kganyago said.
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