Reserve Bank hikes repo rates to 4%
Kganyago said four members of the MPC preferred an increase while one member wanted the rate to remain unchanged at 3.5%.However, for South Africa there were expectations that rates would increase for two reasons: the first being last month’s multi-year high consumer price inflation which accelerated to 5.9% year-on-year from 5.5% in November, the highest since March 2017 as well as some expectations that the US Federal Reserve will start its policy interest rate normalisation process in March.
Other upward revisions included local electricity price inflation revised up to 14.5% from 14.4% last year, headline inflation also revised higher to 4.9% from 4.3% for this year and core inflation, which sat at 3.1% last year but revised higher this year from 3.7% to 3.8%.He added that global producer price and food price inflation have also continued to come out higher in recent months and could do so again.
The governor also warned of a “particular risk” that could further impact inflation, highlighting the “possibility of a faster normalisation of global policy rates. This [rate normalisation risk] is currently built into the forecast which assumes some rate hikes to begin around June this year. Kganyago added that the Reserve Bank forecasts also showed that in the near term, headline inflation increased well above the mid-point of the inflation target band, and only returns close to the mid-point in the fourth quarter of this year.
“After leaving interest rates unchanged at their historically low level since July 2020, the MPC eventually started the interest rate hiking cycle in November last year – increasing the repo rate by 25 basis points to 3.75%. Pienaar said given a deteriorating outlook for consumer inflation, the bureau predicts three further 25 basis point hikes this year – 1% in total.Alexander Forbes chief economist Isaah Mhlanga said following the release of Statistics SA’s inflation figures last week that showed that last month’s CPI accelerated to 5.9% year-on-year, the central bank had no choice but to raise rates.
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