Johannesburg – Absa bank on Thursday said the interest rates were likely to rise further towards the end of the year following the South African Reserve Bank (SARB) Monetary Policy Committee’s decision to hike the repo rate by 25 basis-points on Thursday.
The SARB Monetary Policy Committee on Thursday raised the key monetary policy interest rate – the repurchase, or repo rate – by a further 25 basis points, from 6,75 percent to 7 percent per annum in a bid to tame rising inflation.
This was a third successive increase after the Monetary Policy Committee had hiked the repo rate by 50 basis points to 6,75 percent at its last meeting in January.
SARB Governor Lesetja Kganyago said that although the longer-term outlook had improved, inflation was still expected to remain outside the bank’s target of 3 to 6 percent for an extended period.
Kganyago said SARB instead expected inflation to average at 6,6 percent this year.
Jacques du Toit, Absa Home Loans Property Analyst, said the further hike in interest rates came against the background of still mounting inflationary pressures.
He said these inflationary pressures were driven by factors such as the rand exchange rate, food prices, electricity tariffs and oil and fuel prices.
“In view of trends in and the outlook for inflation, the forecast is for interest rates to rise further towards the end of 2016,” Du Toit said.
Based on this hike in the repo rate – the rate at which commercial banks borrow funds from the Reserve Bank – Absa announced that its prime lending and variable mortgage interest rates would rise from 10,25 percent to 10,5 percent per annum, effective from March 18, 2016.
The rand traded at R15,31 to the dollar by close of business on Thursday.