The South African Reserve Bank (SARB) increased its benchmark repo interest rate by another 50 bps to 7.75% at its March 2023 meeting. Markets had expected a smaller 25 bps increase. The move triggered a surge in the rand , which extended earlier gains to rise nearly 2% against the dollar. It was the 9th consecutive rate hike since policy normalization started in November 2021, bringing borrowing costs to the highest since May 2009. Policymakers revised significantly upward headline inflation for 2023, now expected at 6% from 5.4% previously due to higher prices of core goods and food in the near term.
However, the SARB says food and fuel inflation are expected to ease, resulting in a headline forecast of 4.9% for 2024 and 4.5% in 2025.
The five-member Monetary Policy Committee was split 3-2 in its decision, with 3 members preferring a 50 bps increase and 2 wanting a 25 bps rate increase.
South Africa like other emerging nations has to balance the rate differential with the US Federal Reserve raising rates, currency flight, inflation and growth risks.
“Despite some easing of producer price and food inflation, global price levels remain elevated,” he told a media conference.
“Electricity prices and other administered prices continue to present clear short and medium-term risks.”
SARB Governor Lesetja Kganyago said during a press briefing.
South Africa’s Markets Reaction
- The rand strengthened against the dollar after the central bank decision. It triggered a surge in the rand, which extended earlier gains to rise nearly 2% against the dollar.
- The yield on the benchmark government 10-year bond climbed four basis points to 10.57%.
South Africa Inflation
South Africa’s February consumer inflation edged up to 7.0% year on year from 6.9% in January, data showed last week, signaling that rolling power cuts nationwide may be stoking price pressures.
“Electricity prices and other administered prices continue to present clear short and medium-term risks.” Central bank governor Lesetja Kganyago said
Kganyago said the rise in South Africa’s headline inflation rate has been shaped primarily by fuel, electricity and food price inflation.
With core goods and food higher in the near term, headline inflation for 2023 was revised significantly higher to 6.0%, up from 5.4%, he said.
Despite this, food and fuel inflation are expected to ease, resulting in a headline forecast of 4.9% for 2024 and 4.5% in 2025, he said.
South Africa Growth
Kganyago said economic growth “has been volatile for some time and prospects for growth appear even more uncertain than normal”.
Source SARB
From The Traders Community Research Desk