SA surprises with biggest rates hike in two decades

The SA Reserve Bank surprised financial markets by delivering its biggest increase in borrowing costs in almost two decades, and signalled a more aggressive tightening of monetary policy ahead. The rand rallied.

The monetary policy committee (MPC) raised the repurchase interest rate to 5.5% from 4.75%, governor Lesetja Kganyago said on Thursday in an online briefing that it’s the biggest hike since September 2002 and marks the first time that the central bank has moved by 75 basis points — in either direction — since the turn of the century. 

Only seven of 20 economists in a Bloomberg survey predicted the move, with the rest seeing a smaller 50 basis-point increase. Of the five members on the panel, three voted for the 75 basis-point increase, one preferred a 100-basis-point hike and the other 50 basis points.

The implied policy rate path of the Reserve Bank’s quarterly projection model, which the MPC uses as a guide, indicates its key rate will be at 5.61% by year-end, compared with its May forecast of 5.3%. It’s seen at 6.45% by the end of 2023, up from 6.21%.

The rand gained 0.6% on the announcement and traded 0.5% stronger at R17.07 to the US dollar by 3.39pm in SA, while the FTSE/JSE Africa All Share Index reversed an earlier gain and was little changed. The yield on the 2026 government bond fell 26 basis points to 11.12%. 

“The swap curve has come under some flattening pressure here,” said Michelle Wohlberg, a Johannesburg-based fixed-income analyst at Rand Merchant Bank. That signals the central bank “will front-load their hikes and then scale back once inflation is under control”, she said. — Bloomberg

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