Cape Town -- IN an attempt to tame high inflation, the South African Reserve Bank (SARB) increased the repo rate by 75 basis points to 6.25%.
President of the Reserve Bank Lesetja Kganyago made the announcement during a media conference on Thursday afternoon.
The increase was done against the backdrop of high inflation rates which currently stands at 7.8% − well above the 6% bound for its target range.
Kganyago said: “In the wake of the Covid-19 pandemic and heightened geo-political tensions, the global economy has entered a period of persistently high inflation and weaker economic growth ... Many developing economies exited the pandemic with less than full recovery and high debt levels.”
In July, the interest rate was also hiked by 75 basis points. The increase was the highest since September 2002 when this rate was increased by 100 basis points.
The bank’s latest move means that ordinary South Africans will now have even less money in their pocket, "especially those with debt", said economist Ulrich Joubert.
Joubert said debt payments that did not have fixed interest rates (mortgage payments or car repayments) would increase.
"This is a direct amount of money that is taken out of the consumer's pocket and leaves him or her in a weaker position when they walk into shops," he said.
The Congress of South African Trade Unions (Cosatu) said although it welcomed the central bank’s stance on curbing inflation, Thursday’s interest rate hike was “just too much”.
“It’s going to make it more difficult for workers to buy food and pay for their electricity and public transport,” Cosatu’s Matthew Parks told Weekend Argus.
“It will benefit the banks but it will make it difficult for workers to survive.”
Investors do have something to smile about as a higher repo rate means more returns. This includes pensioners who live off the interest of their investments.
Kganyago also said that Russia’s war in Ukraine continued to impair production and trade of a wide range of energy, food and other commodities.
“The supply of energy to the Euro Area is limited as winter approaches, placing immense strain on households, businesses and governments.”
The SARB expects the national economy to grow by 1.9%, (from 2.0%) this year .
Growth in the first quarter, according to the SARB, surprised to the upside, at 1.7%.
In the second quarter, flooding in KwaZulu Natal and more extensive load-shedding contributed to a contraction of 0.7%.
Weekend Argus.