SA Reserve Bank governor Lesetja Kganyago delivered the decision made by the Monetary Policy Committee on interest rates for the country on Thursday. Picture: Oupa Mokoena/ African News Agency (ANA)
South African consumers will be forced to readjust their monthly budgets once again after the South African Reserve Bank (SARB) hiked the repurchase (repo) rate once again, this time by 50 basis points (BPS).
The SARB governor, Lesetja Kganyago, made the announcement on Thursday, following the bank’s Monetary Policy Committee (MPC) meeting.
The 50 BPS hike to the repo rate means that the repo rate will now increase to 8.25% and the prime lending rate to 11.75%. in the country.
This increase is the 10th consecutive increase since the start of 2022, with South Africans seeing the repo rate rise from 3.75% at the start of January 2022.
“As we approach the mid-point of the year, persistent inflation and elevated financial stability risks continue to mark a somewhat improved global growth outlook. South Africa’s economic conditions, however, remain poor,” the governor said during his announcement.
“Economic growth has been volatile for some time and prospects for growth remain uncertain. An improvement in logistics and a sustained reduction in load-shedding, or increased energy supply from alternative sources, would significantly raise growth. The rand has weakened over the past year, with further sharp depreciation in recent weeks. The implied starting point for the rand forecast is R18.68 to the US dollar, compared with R17.80 at the time of the previous meeting. Currency markets are expected to remain volatile and sensitive to idiosyncratic shocks,” Kganyago said.
“The rise in South Africa’s headline inflation rate has been shaped primarily by fuel, electricity and food price inflation. Compared to the previous meeting, fuel and electricity price inflation is somewhat lower and food price inflation higher. Fuel price inflation is expected to be -2.0% in 2023 (down from -0.6%). The electricity price forecast is also lower at 11.6% this year, 13.4% in 2024, and unchanged at 10.9% in 2025,” Kganyago further said.
The rise in South Africa’s headline inflation rate has been shaped primarily by fuel, electricity and food price inflation. #SARBMPCMAY2023 pic.twitter.com/cJgUbR1HnF
— SA Reserve Bank (@SAReserveBank) May 25, 2023
Frank Blackmore, lead economist at KPMG, told “Business Report”, “The SA Reserve Bank’s MPC is committed to reducing inflation to the target of 4.5%. The current inflationary reads from March this year is at 7.1%.
“This increase is in line with other areas around the world, after their recent meetings that were held. Other factors contributing to the potential increase would be the recent weakening of the rand and the persistent level of inflation that we have seen through to April this year.”
He added: “There is an expectation for inflation to start reducing from May onwards, given that it was in May last year that the biggest inflationary increases started coming through.”
SARB said that its GDP growth forecast remains unchanged from the previous meeting, of 1.0% and 1.1% respectively.
Our forecast for core inflation is revised up to 5.3% in 2023, 5.0% in 2024 and 4.6% in 2025. pic.twitter.com/ZoG8wPmoMv
— SA Reserve Bank (@SAReserveBank) May 25, 2023
The governor further announced, “With core goods and food higher in the near term, headline inflation for 2023 is revised up to 6.2%. Headline inflation for 2024 also increases to 5.1%, before moderating to 4.5% in 2025 on the back of easing food and fuel inflation.”
The latest Household Affordability Index shows that year-on-year the average cost of the household food basket increased by R481.02 (10.6%) – from R4 542.93 in April 2022 to R5 023.95 in April 2023.
It is no secret that South Africa is in a cost-of-living crisis, with inflation soaring, see-sawing fuel prices and the economy being battered by the effects of the rolling blackouts imposed by the ailing state-owned power utility, Eskom.
Eskom also announced that the possibility of Stage 8 load shedding loomed large for South Africans this winter, as it battles to maintain its generation capacity to keep up with the demand for electricity.
Analysts have also warned that the country is heading into recession territory for the first quarter of 2023, after experiencing load shedding every day this year.
This was according to a Bloomberg survey of economists, with 7 economists responding to a question about the chance of a recession.
The economy is unlikely to grow by more than 0.3% quarter-on-quarter through 2023, according to Bloomberg's survey. Economists see gross domestic product growth slowing to 1.2% this year from 2.3% in 2022.
BUSINESS REPORT