Sarb had little choice on repo rate hike, say economists

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Sarb had little choice on repo rate hike, say economists

The repo rate has been increased by 75 basis points to 5.5%, with the prime lending rate now at 9%.

FILE: Reserve Bank Governor Lesetja Kganyago. Picture: GCIS.
  • South African Reserve Bank
  • Repo rate
  • Inflation
  • Interest rate

JOHANNESBURG – The knock-on effects of high inflation have been highlighted as one of the reasons that the South African Reserve Bank (Sarb) has moved to hike the repo rate.

While an increase of 50 basis points has been predicted by many economists, the monetary policy committee took a more aggressive approach to stop inflation.

The repo rate has been increased by 75 basis points to 5.5%, with the prime lending rate now at 9%.

Governor Lesetja Kganyago said that continued high oil prices leading to rising inflation was one of their main worries and the bank needed to act accordingly.

Chief economist at Stanlib Asset Management, Kevin Lings: “If they allow it to get out of hand it will become self-fulfilling. It’s an indirect way of managing the current nature of inflation but there’s very little else that they can do.”

Citibank’s Gina Schoeman said that the warning signs were there and that the reserve bank had responded.

“Sarb is seeing second-round effects, in other words, core inflation is starting to rise more than headline inflation in their forecast, which is on concerning,” Schoeman said.

While there is agreement that that move to raise rates was necessary, many South Africans already hit by rising food and fuel prices will be wondering how they will get through.

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