Repo rate rise: Biggest hike in five years as Reserve Bank tries to curb inflation
The Reserve Bank has hiked the repo rate by 50 basis points, the biggest margin in more than five years as inflation sees food and fuel prices pushing consumer prices to the upper end of its target range.
The repo rate is now 4.75% after four members of the bank's monetary policy committee preferred the announced increase and one member preferred a 25 basis point rise during a meeting which began on Tuesday.
The higher repo rate means under-pressure consumers with credit cards, home loans and car financing will pay more to service their debts as they grapple with higher fuel and food prices. However, curbing rising inflation is crucial to cushion salaries of consumers.
Governor Lesetja Kganyago said the bank had a responsibility to respond to the challenges the economy faces and take an appropriate stance in accordance with its mandate to protect consumers from the ravages of rising inflation.
“We have a responsibility to curb inflation because inflation is eating into the incomes of the working people in SA. We have to live true to our mandate”.
He said as a result of higher global food prices, local food price inflation had also been revised up and was expected to be 6.6% in 2022, up from 6.1%.
Kganyago also said the bank’s forecast of headline inflation for this year is revised higher to 5.9% from 5.8%, primarily due to the higher food and fuel prices.
“While food prices will stay high, fuel price inflation should ease in 2023, helping headline inflation to fall to 5%, despite slightly higher core inflation. Headline inflation of 4.7% is now expected in 2024”.
He said the decision was made taking into account that the average surveyed expectations of future inflation had increased to 5.1% for 2022 from 4.8%.
John Loos, property sector strategist at FNB Commercial Property Finance, said with the 50 basis points hike the market can expect some renewed slowdown in sales activity in the commercial property sector in the second half of 2022, while recent declines in vacancy rates may slow on the back of a stalling in-demand growth for new commercial space.
“We also expect this ongoing rate hike to keep average commercial property capital value growth at low single digits, translating into negative growth in real [inflation-adjusted] terms.
“We expect the pace of new residential development activity to slow in the second half of 2022 in lagged response to interest rate hiking already implemented, and with further hiking anticipated”.
The hike comes as consumer price inflation remained unchanged in April at 5.9% according to StatsSA on Wednesday. With the data, experts said headline inflation looked set to touch the upper inflation target band this month, at 6%. They expected inflation to continue rising in June, as new housing inflation data comes through, and food and petrol prices continue to climb.
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