Earlier today, the South African Reserve Bank (SARB) hiked the repo rate once again by 25 basis points, taking the repurchase rate (repo rate) to 7.25% from 7%.
This means that the prime lending rate in the country will increase from 10.5% to 10.75%.
SARB Governor Lesetja Kganyago said that the changes will come in to effect on 27 January 2023.
Many economists ahead of the Monetary Policy Committee’s (MPC) meeting predicted a hike of between 25 - 50 basis points.
Frank Blackmore, Lead economist at KPMG, told Business Report, “As expected, the MPC of the South African Reserve Bank will increase the repo rate by an additional 25 basis points that leaves the repo rate at 7.25% and prime rate increases to 10.75%. This increase was unexpected because inflation at 7.2% for December remains well above the midpoint of the 3 to 6% target band, targeted by the Reserve Bank. The risks to inflation also remain on the upside, and these include the impact of the war in the Ukraine on prices of both fuel and food, as well as domestic price pressures coming from administered prices including increases in electricity as well as the impacts of load shedding on the economy.”
Blackmore further said, “These increases do not represent the last increases in interest rates this year, and the governor was clear to point out that the MPC will be data dependent in this regard. We should be remembered that the MPC targets inflation, and as long as that inflation is outside the target, we can expect further increases by the MPC of the repo rate - although these will probably be more in line with the 25 basis points seen today.”
Tertia Jacobs, Treasury Economist at Investec, said, “The MPC raised the policy rate by 25bps, in line with Investec Corporate & Institutional Banking’s (ICIB) forecast, compared to consensus of 50bps. The moderation in the pace of rate hikes, with three members in favour of 25bp and two members in favour of 50bps, shows that the MPC is starting to consider the lagged effect of the cumulative rate hikes of 375bp since November 2022 to date. However, inflation risks remain to the upside.”
Jacobs went on to say that weaker economic fundamentals, with a material downward revision to its GDP growth forecast to 0.3% from 1.1% and a potential deterioration in the fiscal position, renders the rand vulnerable.
“We think the interest rate cycle has possibly peaked, but we will continue to monitor developments in the rest of the world, e.g. The Fed’s interest rate decision on February 1st and the Chinese reopening, which are important drivers of stronger global growth. The FRA market is likely to continue to price in another 25bps rate hike at the March MPC meeting. Finally, government’s urgency in dealing with the electricity crisis that could shave of 2% off GDP growth this year, is critical,” Jacobs added.
Brina Biggs, Senior Manager at 1Life, “If you’ve got any kind of debt, it’s going to cost you 0.25% more by the end of January, as the repo rate was announced by 0.25% increase, putting our prime lending rate now at a 10.75%. Your month to month is marginal, depending on the kind of debt that you have, but the real concern lies in those who took their debt out in 2021 when the prime lending rate was quiet low.”
Biggs further said, “Now looking at the 9th consecutive increase, which translates to over 100% increase since November 21 to now, on your repo rate. Back then it was a 3.5%, now it is sitting at 7.25%, so some South Africans really just need to buckle down on the debt that they now need to pay across and try to get their salaries to stretch. If you didn’t have a relationship with your money, now is a good time to start changing that and really start to look towards your generational wealth and how you will make sure that what you do today doesn’t impact your family going forward. Buckle down, learn how to stay within your budget and do what works best for you because this isn’t over.”
Andra Nel, Purpose Manager at KFC, said, “The increase of an additional 25 basis points on the repo rate is something that most households will need to come to terms with today and what that means on their monthly household budget. This increase is going to put additional pressure on consumers especially for those that were already struggling to provide food for their family on a daily basis or even just putting food on the table for themselves.”
“What we are seeing through KFC Add Hope is that they need in communities is definitely increasing and the effect of an announcement like this is most devastating on the poorest of the poor. Luckily, there is a solution that as a society, we can come together and through a small R2 donation, that our customers give on a daily basis, added to KFC’s donation, we are able to continue to make sure that we make a difference to those that need it most and continue to serve over 30 million meals every single year,” Nel further said.
Sanisha Packirisamy, Economist at Momentum Investments, said, “ Evidence that inflation is cooling in the United States (US) has given the Federal Reserve (Fed) room to take a step back from its hawkish stance. Although macro uncertainty is still high and recession risks remain elevated, global growth expectations appear to have stabilised. These factors have driven investors out of US assets, including the dollar which is typically viewed as a safe-haven asset, into perceived riskier markets. Consequently, the dollar weakened and the rand, among other emerging market (EM) currencies, benefitted from this trend.”
“ The MPC’s interest rate decision was in line with eight out of the 20 surveyed analysts (including ourselves) in the monthly Reuters Econometer poll for January 2023, while eleven analysts were expecting a larger rate increment of 50 basis points. One surveyed analyst expected no change in interest rates. The range of interest rate expectations by the end of next year remains wide in light of elevated uncertainty and a wide range in projected economic outcomes. The SARB is likely to maintain a firm tone in the near term as it acknowledges persistent upside risks to the inflation trajectory, continued interest rate normalisation, globally, and an uptick in longer-dated inflation expectations to 5.5%. We suspect the end of the rate hiking cycle is on the horizon and only anticipate one more interest rate hike of 25 basis points in March,” she further said.
BUSINESS REPORT