South African Interest Rate Hike

November 18, 2021

The South Africa Reserve Bank’s repo rate was increased by 25 basis points to 3.75% from a record low of 3.5% in place since April 2020. The approved decision passed by a narrow 3-2 vote by members of the Monetary Policy Committee. Analysts had been anticipating an initial rate hike this month. CPI inflation has surpassed the middle of the 3-6% target for the past half year and was at 5.0% as of October. Bank officials project only modest South African economic growth of 1.7% next year, 1.8% in 2023 and 2.0% in 2024, but inflation is liable to stay at or above the target midpoint (4.3% next year, 4.6% in 2023 and 4.5% in 2024). A released statement pledges to focus on second-round inflation effects, not the temporary shocks. That means a data-dependent future policy stance amid an environment that will remain highly uncertain due to Covid among other things. The baseline expectation regarding the repo path calls for hikes averaging 25 basis points per quarter over the coming three years, with the caveat that actual changes could easily deviate from this script. The repo rate at the start of 2020 before the pandemic was at 6.5%.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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