Reserve Bank hikes repo rate
Consumers have been hit by an interest rate hike ahead of
the festive season.
The South African Reserve Bank's Monetary Policy Committee has increased the repo rate, at which the central lends money to commercial banks, by 25 basis points to 6.75%.
This means the prime lending rate now stands at 10.25%.
Reserve Bank Governor Lesetja Kganyago made the announcement in Pretoria on Thursday.
"The approach of the MPC is to look through the first round effects and focus on the possible second-round effects of supply-side shocks," Kganyago said.
"However, shocks of a persistent nature such as extended periods of currency depreciation, elevated oil prices and multi-year electricity price increases make it difficult to disentangle the first and second round effects.
The MPC had to decide whether to act now or later. Given the relative stability in the underlying core inflation measures, delaying the adjustment could give the MPC room to reassess these unfolding developments in subsequent meetings. However, delaying the adjustment could cause inflation expectations to become entrenched at higher levels and thus contribute to second round effects, which could require an even stronger monetary policy response in the future."
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Efficient Group economist Francois Stoffberg says he would have preferred it if the Reserve Bank kept the repo rate unchanged.
"Just for a while, to support the demand-side of the economy. They don't really say inflation is out of bounds. They do note that the oil price but we've seen that come down over the past few months.
"Inflation is also very low for this year at 4.7%. Next year we don't really see inflation going up to 5.5% so in terms of price stability it definitely wasn't necessary. The only reasonable explanation for increasing interest rates would have been our global competitiveness."
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