The South African Reserve Bank’s MPC on Thursday announced that they will increase the repurchase rate by 75 basis points to 5.5% per year. This decision is set to take effect on the 22nd of July 2022. Previously the Monetary Policy Committee set the repurchase rate at 4.75% per year.
This move is geared toward combating inflation in South Africa. The Monetary Policy Committee is mandated with conducting monetary policy in a flexible inflation context. In light of the current inflationary pressure all over the world, South Africa included, the committee has announced the increase in the repo rate.
“In the wake of the Covid-19 pandemic and aggravated geopolitical tensions, the global economy has entered a period of persistently high inflation and weaker economic growth,” he said. “Russia’s war in Ukraine will continue to impair production and trade of a wide range of energy, food and other commodities,” – Governor Lesetja Kganyago.
The South African Reserve Bank Governor informed the South Africans that the economy has not yet recovered from the adverse effects of COVID 19. This move is therefore an attempt to remedy these effects.
The Monetary Policy Committee made the decision after the meeting held in July 2022 the next meeting is set for 22nd September 2022. The committee meets eight times a year to make and announce policies. The committee meets numerous times to assess the state of the economy and make relevant decisions.
This is the bank’s fifth consecutive increase after it kept the rate at a record low of 3.5% from April 2020 to November 2021 to provide economic relief amid the Covid-19 pandemic.
South African Reserve Bank’s Forecasts & Outlook.
The South African Reserve Bank now expects Africa’s most developed economy to grow 2% in 2022, revised up from the 1.7% expansion predicted at the previous meeting in January, while the GDP forecast for 2023 was revised down to 1.3% from 1.9% previously.
The decision by the South African Reserve Bank comes shortly after the European market was issued with a notice of an expected hike in rates in response to the inflationary pressure. The European Central Bank is expected to make a decision on the monetary policies after a meeting held in Frankfurt on 21st July 2022.
Rising energy and food prices have pushed up South Africa’s consumer-price inflation in recent months. The rate quickened to a 13-year high of 7.4% in June from 6.5% in May, breaching the upper limit of the central bank’s target range of between 3% and 6%. The bank’s forecast of headline inflation for 2022 was revised up to 6.5% from 5.9%.
Investors will have to rethink their options after this increase by the South African Reserve Bank could likely cause a great effect on them. Many have raised questions as to whether the increase in the rates will help combat inflation. There are concerns that the move may have no effect at all on the inflation prices.
