THE South African Reserve Bank (SARB) on Thursday raised its main repo rate to 6.25% from 5.5%, highlighting the pressure on emerging-market central banks to keep up with the U.S. Federal Reserve’s monetary tightening.
Three members of the committee preferred the announced increase while two members preferred a 100 basis points increase.
Thursday’s increase means that the South African Reserve Bank has raised its repo rate by a total of 2.75 percentage points this year in an effort to stabilize the rand currency even as weak growth in Africa’s most developed economy appears to be keeping a lid on inflation.
Data from South Africa’s statistics office this week showed that consumer price inflation eased to 7.6% in August from 7.8% in July, although still above the SARB’s target range of annual inflation of between 3% and 6%.
The bank slightly revised down its forecast for South Africa’s economic growth this year to 1.9% from 2% predicted at its last meeting in July.
It expects gross domestic product to expand by 1.4% in 2023 and 1.7% in 2024, slightly higher than previously forecast.
“The level of the repurchase rate is now closer to the level prevailing before the start of
the pandemic. The revised repurchase rate path remains supportive of credit demand
in the near term, while raising rates to levels more consistent with the current view of
inflation risks. The aim of policy is to anchor inflation expectations more firmly around
the mid-point of the target band and to increase confidence of hitting the inflation target
in 2024,” said Lesetja Kganyago, Governor of the South African Reserve Bank.
“Guiding inflation back towards the mid-point of the target band can reduce the
economic costs of high inflation and enable lower interest rates in the future. Achieving
a prudent public debt level, increasing the supply of energy, moderating administered
price inflation and keeping wage growth in line with productivity gains would enhance
the effectiveness of monetary policy and its transmission to the broader economy.”
INSIDE POLITICS. Additional reporting by agencies.
