Reserve Bank increases repo rate by 25 basis points to 7.25%

The Reserve Bank has increased the repurchase rate by 25 basis points (a quarter of a percent) to 7.25% per year, with effect from Thursday.

“Three members of the (monetary policy) committee preferred the announced increase and two preferred a 50 basis points increase,” Reserve Bank governor Lesetja Kganyago said.

He said while the South African economy grew by a relatively strong 1.6% in the third quarter of 2022, the expansion was not broad-based.

“We forecast no growth in the fourth quarter. For the whole of last year, GDP growth of 2.5% is expected (up from 1.8%),” Kganyago said.

He said for 2023, and as a result of extensive load-shedding and other logistical constraints, the bank now forecasts GDP growth of only 0.3%.

“Given the scale of load-shedding, the bank estimates that it deducts as much as two percentage points from growth in 2023, compared to the previous estimate of 0.6 percentage points.”

Kganyago said over the medium term, the forecast took into account ongoing high levels of load-shedding, and more modest household spending and investment growth than previously.

“Investment is still positive but is revised down due to weaker confidence and lower expected growth,” Kganyago said.

He said with declining commodity prices, exports were also forecast to be less robust.

“The forecast incorporates an assumption of increased load-shedding in each year compared to what was pencilled in at the time of the November meeting.”

Kganyago said the revised repurchase rate remained supportive of credit demand in the near term, while raising rates to levels more consistent with the current view of inflation and risks to it.

“The aim of policy is to anchor inflation expectations more firmly around the midpoint of the target band and to increase confidence of attaining the inflation target sustainably over time.”

TimesLIVE