The Reserve Bank hiked the repo rate by 50 basis points, the widest range in more than five years, as food and fuel prices push inflation towards the upper end of their target range.
The repo rate is now at 4.75% after four members of the bank’s monetary policy committee brought forward the announced hike and one brought forward a 25 basis point hike during a meeting that began on Tuesday.
The higher repo rate means under pressure Consumers with credit cards, home loans and auto financing will pay more to service their debt as they grapple with higher fuel and food prices. But curbing rising inflation is crucial to cushioning consumers’ salaries.
Governor Lesetja Kganyago said the bank has a responsibility to respond to the challenges the economy is facing and according to their Mission to take an appropriate stance to protect consumers from the ravages of rising inflation.
“We have a responsibility to curb inflation because inflation is eating away at the incomes of working people in SA. We must stay true to our mission.”
He said as a result of higher global food prices, local food price inflation has also been revised upwards and is expected to be 6.6% in 2022, up from 6.1%.
Kganyago also said the bank’s forecast for headline inflation for this year will be revised upwards to 5.9% from 5.8%, mainly due to higher food and fuel prices.
“While food prices will remain high, fuel price inflation should ease in 2023 and help headline inflation slow to 5% despite slightly higher core inflation. Headline inflation is now expected to be 4.7% in 2024.”
He said the decision was made taking into account the fact that the average polled inflation expectation for 2022 has risen from 4.8% to 5.1% % had risen.
John Loos, real estate sector strategist at FNB Commercial Property Finance, said that with the 50 basis point hike in the second half of 2022, the market is expected to see a renewed slowdown in selling activity in the second half of 2022 commercial real estate sector, while vacancies have fallen recently. Interest rates may slow due to stalled growth in demand for new commercial space.
“We also expect this continued interest rate hike to weigh on average capital value growth of commercial real estate will remain in the low single digits, leading to negative growth in real [inflation-adjusted] terms.
“We’re going expects the pace of new residential development to slow in the secondof 2022 as the rate hikes already implemented are lagging behind, and further hikes are expected.”
The hike comes as Consumer price inflation remained unchanged at 5.9% in April, according to StatsSA on Wednesday. Given the data, experts said headline inflation is likely to hit the upper inflation target range this month at 6%. They expected inflation to continue to rise in June as new housing inflation data and food and gas prices continue to rise.
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