With the Rand’s relentless demise, persistently high inflation, and the looming spectre of loadshedding casting a shadow over the economy, the South African Reserve Bank (SARB) has wielded its policy tool with conviction, raising its benchmark interest rate by a further 50 basis points. This decision brings the repo rate to 8.25% and the prime rate to an eye-watering 11.75%, which will send shockwaves through the local landscape with the already-struggling South African consumer having to digest yet another cumbersome rate hike.
Despite annual consumer price inflation (CPI) easing to an eleventh-month low, slowing to 6.8% in April, down from 7.1% in March, the SARB elected to increase borrowing costs by a further 50 basis points, bringing rates to their highest level since May 2009. The significant depreciation of the Rand and stubbornly high inflation rates act as the main drivers behind the latest rate adjustment. While general market consensus estimates pointed toward a likely 25 basis point rate hike, SARB Governor Lesetja Kganyago noted that inflation remains a significant risk, with loadshedding increasing business and living costs. While inflation risks have been revised to the upside, headline inflation is forecast to remain above the upper target band until the third quarter of 2023, with core inflation revised to 5.3% for 2023. Headline inflation is forecast to drop to 6.2% in 2023 before slowing to 5.1% in 2024.
Since the SARB initiated its rate-hiking cycle in November 2021, it has raised interest rates by a staggering 4.75%. Despite this, Lesetja Kganyago stated that the economy has “only now reached restrictive territory.”
Sources: South African Reserve Bank, StatsSA, SABC News, Trading View
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