The South African Reserve Bank. (Archive photo: ANA)
The Reserve Bank’s monetary policy committee announced an increase of 50 basis points on Thursday, bringing the repo rate to 7.75% and the prime lending rate to 11.25%. This increase will take effect on Friday.
This is higher than the expected increase of 25 basis points predicted by economists earlier. This is obviously also bad news for South Africans who have debts such as home and car loans.
Against this backdrop, the MPC decided to increase the repurchase rate by 50 basis points to 7.75% per year, with effect from the 31stof March 2023. Three members of the Committee preferred the announced increase. Two members preferred a 25 basis points increase. #MPCMARC2023 pic.twitter.com/LMAKRvH77a
— SA Reserve Bank (@SAReserveBank) March 30, 2023
Lesetja Kganyago, president of the Reserve Bank, says three members of the committee voted in favor of the approved increase, while two members were in favor of the lower increase.
The increase comes amid excessive high inflation which is already putting a lot of pressure on consumers and traders. Annual consumer inflation currently stands at 7%.
Lesetja Kganyago, President of the Reserve Bank of Uganda
Factors that prompted the committee’s eventual decision included increased inflation and weak economic growth.
“The revised repurchase rate is now less accommodative and more in line with the current view of risks to inflation,” said Kganyago.
The Reserve Bank believes the increase is necessary to suppress inflation in the future.
“Economic and financial conditions are expected to remain volatile for the foreseeable future.”
Samuel Seeff, chairman of the Seeff property group, says the outlook for the property market remains stable and active despite the increased rate. Seeff says he understands that the Reserve Bank was faced with a difficult decision, but believes that an increase of 25 basis points would be sufficient.
“The Eskom energy crisis, weak business confidence, weakening of consumer inflation to 7% in February (from 6.9% in January), and pressure on the currency left little room for maneuver.
“Having said that, we believe that the increase of 50 basis points is a bit high and that the Reserve Bank could have kept it at 25 basis points.
“Nonetheless, the rise was largely expected and already factored in by the market. While not ideal, the rate is still below the historical average of the last 20-30 years, and we continue to see a strong, stable property market.”
Dr. Dion George, the DA’s spokesperson on finances, says the announcement serves as a measure to mitigate the damage caused by the ANC’s inability to respond to and act against rising living costs and food insecurity.
“The government has failed in its primary responsibility to create an environment that is conducive to economic growth, but has instead sat back while South African households are dealt one blow after another.”
