Today’s South African Reserve Bank Rate Hike of 25 Basis Points Was Less Than Predicted
January 26, 2023
Instead of a 50-basis point rate hike to 7.50% by a 3-2 vote of policymakers, the five-person Monetary Policy Committee voted 3-2 to increase South Africa’s repo rate to 7.25%. The interest rate had been at 6.5% coming into the pandemic year of 2020 and was sliced to 3.5% in five moves by May of that year. The beginning of the current tightening cycle began in November 2021 with a 25-bp hike to 3.75% and two more 25-bp increases in the first quarter of 2022. At the four ensuing policy review, the rate was lifted 50 bps in May and then by 75 basis points each in July, September and November of 2022. Officials are targeting CPI inflation, which in December stood at 7.2% (4.9% core) in a corridor of 3-6%. They expect inflation to drop to 5.2% in 2023 and to approximate the target midpoint with an average of 4.7% inflation in 2024. According to a released statement explaining today’s action, “the aim of policy is to anchor inflation expectations more firmly around the midpoint of the target band and to increase confidence of attaining the inflation target sustainably over time…. Monetary 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.”
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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