The Reserve Bank’s Monetary Policy Committee (MPC) raised interest rates by 25 basis points today due mainly to inflationary fears arising from food, fuel and utility prices that are rising faster than expected.
Part of the reasons for these rising prices included supply disruptions to the global economy arising from the Covid-19 pandemic, into a global market where demand was rising sharply, SA Reserve Bank Governor Lesetja Kganyago said yesterday.
The rise in repo rate to 4 percent, suggested by a clear majority of four out of five MPC members, pushing the prime lending rate to 7.5 percent, was not unexpected - 16 out of a Reuters poll of 23 economists had forecast the 25 basis point increase.
Kganyago, responding to a question from the audience, said the MPC did not consider a larger hike than 25 basis points. He said the only debate was about the timing of the increase rather than whether there should be an increase or not.
The MPC’s decision follows a 25 basis point increase last November, this after the repo rate fell to historically low levels by 3 percent through the pandemic last year and in 2020 as the MPC did all it could in a low inflationary environment to help an economy that was in rapid decline through the pandemic.
"Given the expected trajectory for headline inflation and upside risks, the committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates," the SARB said in a statement.
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