The SA Reserve Bank has hiked interest rates for the second straight month to normalize monetary policy from historic lows in a context where rising inflation is prompting developed market counterparties to do the same .
After a three-day meeting, the Monetary Policy Committee (MPC) hiked the repo rate by 25 basis points on Thursday, as predicted by 15 of 16 economists polled by Bloomberg. It was followed by a similar decision at the November policy meeting, which was the first hike in three years.
The move brought the repo rate 4:1 to 4% if a committee member votes to keep prices on hold. The MPC said the economy will grow 1.7% in 2022, compared to its previous forecast of 1.8% in November.
The bank revised its forecasts for headline consumer price inflation to 4.9% for 2022 (from 4.3%), 4.5% for 2023 (from 4.6% ) and 4.5% for 2024, unchanged from November. The surge in those expectations came as Eskom petitioned regulators for a 20.5% price hike in April, after raising them by 15% in 2021.
Bank governor Lesetya Kganyago warned that food price inflation had materialized higher than recently expected.
“Over the past year and into this year, global supply constraints and strong demand have caused a variety of prices to accelerate, including commodities, intermediates and Food,” said Kganyago.
Prior to the announcement, the rand was 0.42% firmer at R15.24, but by 4:15 p.m. it had reversed course and was 0.35% weaker at R15,36.
The bank’s decision came a day after the Federal Reserve gave the clearest indication yet that it was ready to hike interest rates, but failed to indicate how aggressively its tightening was would be.
The rim weakened up as much as 0.9% from the dollar earlier before rebounding after the Fed said it is likely to start raising rates in March if it also winds up its Covid-19 stimulus package. Fed Chair Jerome Powell said it may take longer than expected to tame rampant inflation, which has accelerated as the US economy opened up after lockdowns imposed due to the Covid-19 pandemic.Before the R2030 government bond speech had weakened to its worst level in a week, with the yield rising 10 basis points to 9.45%. It had pulled right back after the MPC to sit just one basis point at 9.36%. Bond yields move inversely to their prices.
North West University Business School economist Raymond Parsons said the decision was expected because, in order to maintain the bank’s credibility, “it was inevitable that the MPC had to raise the repo rate again given the latest inflation data.”
“Borrowing costs for businesses and consumers are expected to continue to rise through the end of this year, potentially affecting confidence levels,” Parsons said.
Update: January 27, 2022
This Story has been updated with fresh market data and other information.