SARB hikes repo rate by 0.25%

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GillMarcusBlue Independent Newspapers. Reserve Bank governor Gill Marcus. Photo: Simphiwe Mbokazi.

Pretoria - South Africa's Reserve Bank raised interest rates by 25 basis points to 5.75 percent on Thursday, saying the moderate increase struck a fair balance between its concerns about weak economic growth and those over rising inflation.

“The monetary policy stance remains supportive of the domestic economy, and, as before, any future moves will be gradual and highly data-dependent,” Governor Gill Marcus told a news conference.

A small majority of analysts polled by Reuters last week had expected the central bank to hold off raising interest rates until later in the year to give the ailing economy a boost.

Eighteen of the 31 analysts surveyed expected rates to stay at 5.5 percent this week, while seven expected a 25 basis point hike and six a 50 point increase.

The 7-member Monetary Policy Committee voted 6-1 to raise rates by 25 basis points.

The one outlier wanted a 50 basis point hike, Marcus said.

Pressure on the Reserve Bank to hike increased after inflation breached the top end of the 3-6 percent target range in April and accelerated to 6.6 percent in May.

“Although inflation expectations have remained relatively anchored, should inflation persist outside the target band, these expectations risk becoming dislodged,” Marcus said.

Thursday's hike is likely to anger unions who have mounted strikes this year to press for double-digit wage hikes, arguing that workers are grossly underpaid.

More than 200,000 workers in metals and engineering union Numsa, the country's biggest, are now in the third week of a work stoppage, demanding wage increase of up to 15 percent.

The Numsa strike came almost immediately after the end of a five-month platinum boycott that caused the economy to contract in the first quarter.

“The trend in wage settlements pose an upside risk to the inflation outlook, and these pressures are likely to intensify in the current difficult labour relations environment,” Marcus said. - Sapa


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