Interest rates

Reserve Bank raises interest rates

As expected, the Reserve Bank’s Monetary Policy Committee (MPC) raised the repo rate another 25 basis points to 4.25%. This brings the prime rate to 7.75%.

Three committee members voted for the increase, while two wanted a 50 basis point hike.

On a new home loan of R2 million at the prime rate, the monthly payment will increase by around R300 as a result of the rate hike.

After the prime rate fell from 10% in 2019 to 7% last year, the bank started raising rates again in November last year, followed by another 25 basis point hike in January.

The MPC is set to raise rates in a bid to rein in inflation, which has warmed up in recent months.

February consumer inflation hit 5.7% – close to the upper end of the Reserve Bank’s target range of 3% to 6%.

This is largely due to soaring oil prices, which have caused petrol and diesel prices to rise by more than a third over the past year.

Petrol prices are currently on track for a rise of around R1.85 to R1.93 per liter in the first week of April, while diesel prices could see an increase of almost R3 per litre.

In addition, the invasion of Ukraine caused sharp increases in commodity prices, including wheat and cooking oil. This will add to inflationary pressure in South Africa in the coming months.

The Reserve Bank now expects headline inflation of 5.8% this year, well above the 4.9% it previously forecast. This increase is mainly due to higher food and fuel prices.

But the bank also raised its expectations for the growth of the South African economy – which is now expected to be 2.0% in 2022, revised up from 1.7% at the time of the MPC meeting in January.

“This is due to a combination of factors, including stronger growth in 2021 and higher commodity export prices. Output growth in the first quarter of this year is expected to be significantly stronger than expected at the time of the January meeting,” the Reserve Bank said. Governor Lesetja Kganyago noted.

Most economists expect another 125 basis point hike by the end of 2023.