Repo rate hiked by 25 basis points as SARB moves to curb inflation

The MPC made the decision on Thursday following a closed meeting earlier in the day.

This brings the repo rate up to 4.25% following an earlier increase in the January meeting.

The prime lending jumps to 7.75%.

South African Reserve Bank Governor Lesetja Kganyago told media that the other two MPC members preferred an increase of 50 basis points.

"Current repurchase rate levels reflect an accommodative policy stance through the forecast period, keeping financial conditions supportive of credit demand as the economy continues to recover. The bank has ensured adequate liquidity in domestic markets and will continue to closely monitor funding markets for stress.

"Better anchored expectations of future inflation could support lower interest rates and can be realised by achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation and keeping wage growth in line with productivity gains. Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy," Kganyago explained.

While the impact of the Covid-19 pandemic has eased, Russian's invasion of Ukraine has thrown a spanner in the works.

The conflict is expected to continue disrupting global trade as it slows the production of a wide range of energy, food and other commodities.

The central bank's forecast for global growth in 2022 is revised down to 3.7%, down from 4.4%.

"Although policy settings in advanced economies remain broadly accommodative, the onset of policy normalization by major central banks and higher inflation has tightened global financial conditions. Investor appetite for riskier assets is lower.

"Economies that failed to take advantage of better global conditions or to reduce large macroeconomic imbalances remain vulnerable," Kganyago warned.

The South African economy is expected to grow by 2.0% in 2022, revised up from 1.7% since the January meeting.

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