Already tight-fisted South Africans will once again have to turn over every penny after the Reserve Bank’s monetary policy committee increased the interest rate by another 50 basis points to 8.25% on Thursday.
This corresponds to the increase that most economists predicted this week – to consumers’ shock. The announcement brings the prime lending rate to 11.75%.
The increase takes effect on Friday.
There is initially suspected that the interest rate would be increased by 25 basis points, but the weakening of the rand against the US dollar following allegations of an arms deal between South Africa and Russia has significantly increased inflationary risks.
Lesetja Kganyago, president of the Reserve Bank, says all five members of the policy committee voted unanimously for the latest increase of 50 basis points.
The Reserve Bank has already raised the interest rate by 475 basis points since November 2021 and economists warned this week that the latest increase may nail in the coffin may be of many consumers who simply can no longer keep up financially and may lose their homes.
The increase also comes a day after the release of inflation data which showed that the consumer price index (CPI) decreased to 6.8% in April.
However, the inflation rate is still higher than the Reserve Bank’s target band of between 3% and 6%, while food price inflation is still extremely high.
Kganyago attributed the latest increase to, among other things, ongoing poor economic conditions in the country.
“While the overall price of goods has declined in large parts of the world, core inflation continues to rise preventing consumer inflation from falling more sharply. “We expect international markets to remain volatile and policy rates to rise.”
Kganyago further says that the rise in South Africa’s headline inflation rate was mainly driven by fuel, electricity and food price inflation. Compared to the previous policy committee meeting in March, fuel and electricity price inflation is somewhat lower and food price inflation higher.
South Africa’s energy crisis – and ongoing load shedding – which has worsened even further this year, is also weighing heavily on the country’s already strained economy, which poses even more inflationary risks.
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