Only a 25-Basis Point Interest Rate Hike in South Africa

January 27, 2022

Officials at the South Africa Reserve Bank are attempting to engineer a more gradual normalization of their policy interest rate than, for instance, those at the Central Bank of Chile. Chile’s policy rate has been raised five times by a total of 500 basis points in total to 5.5% since mid-2021. The SARB repo rate, by contrast, wasn’t raised until November, and the size of both that move and today’s were only 25 basis points. The new 4.0% rate level is only 50 basis above the pandemic low. South African consumer price inflation had accelerated from 2.9% last February to 5.9% by December, essentially at the top of its targeted corridor. Real GDP last year expanded almost 5%, but officials project a pace of growth over the coming two years of only about a third of that pace. Whether and how long officials can maintain a gradual normalization of the policy rate will hinge critically upon the behavior of expected inflation:

The Committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates. However, economic and financial conditions are expected to remain more volatile for the foreseeable future. In this uncertain environment, policy decisions will continue to be data dependent and sensitive to the balance of risks to the outlook. The MPC will seek to look through temporary price shocks and focus on potential second round effects.

The pre-pandemic level of South Africa’s repo rate was 6.5%.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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