If feelers coming from South Africa are anything to go by, the South Africa Reserve Bank is set to increase its repo rate in the coming days. This is as a result of the rising inflation in that country that has driven up the cost of living to levels not experienced since 2017. On Business Edge for Tuesday, Tolulope Adeleru-Balogun spoke with Professor Andre Roux, Head Futures Studies Programme and Lead Lecturer in Economics at Stellenbosch University to discuss what this means for South Africa’s economy, especially as it tries to emerge from the effects of the coronavirus pandemic.
What Is A Repo Rate?
Simply put, a repo rate is the rate at which a country’s central bank lends money to commercial banks in the event of any shortfall of funds. Basically, the repo rate is used by monetary authorities to control inflation. In this case, South Africa’s inflation has rapidly increased in the past quarter, rising from 5.5 to 5.9% between November and December 2021. This is the highest it’s been in three years. To curtail this inflation, the SARB is considering increasing the rate at which other banks borrow from it.
Professor Roux says the South African Reserve Bank is able to increase this is because it is enabled by the constitution to do so. “The primary mandate of the SARB is to maintain the stability of the currency,” adding further that because no country operates in a vacuum, South Africa is also affected by the inflation being experienced in other places, such as the United States.
Knock-on Effect On The Economy
The South African economy has experienced rising inflation, reaching highs not seen since 2017. Not surprisingly, it has affected everyday items such as fuel, food and alcohol. Data from Statistics South Africa (StatsSA) shows that the consumer price index rose from 5.5% in November to 5.9% in December.
“An increase in repo rates could be painful, but in the long term, it paves the way for stable macro and financial-economic growth which is necessary for economic growth,” said Professor Roux on Business Edge.
To mitigate the effects of inflation experienced in the US and Europe, Professor Roux suggests that it is important that emerging countries like South Africa and Nigeria begin to search for ways to add value so that they are less dependent on the fluctuations of commodity prices, which mainly determine the state of their own economies.
Watch the full episode of Business Edge with Tolulope Adeleru-Balogun above.