The South African Reserve Bank hawkishly hikes interest rate, surprising the markets

SOUTH AFRICA - Report 30 Mar 2023 by Iraj Abedian

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) announced today that it is once again raising the benchmark interest rate by 50 basis points- somewhat unexpectedly. This comes after the Bank had slowed its rate of increase to 25 bps in January of the current year following three consecutive 75 bps increases starting from July 2022. This pushes up the repo rate from 7.25% to 7.75% and the prime lending rate from 10.75% to 11.25%.

The economic environment remains challenging for monetary policy decision making both globally and in the domestic market. Sticky inflation rates continue to warrant monetary policy action despite slowing growth rates amid an increasingly more tumultuous geopolitical and financial environment. The Reserve Bank’s mandate of maintaining price stability was once again the main factor influencing this week’s policy decision to increase rates. South Africa’s inflation, despite its recent downward trend from November 2022 to January 2023, ticked up in February 2023 to register 7% from 6.9% y/y in January. As such, inflation remains well above the upper boundary of the SARB’s inflation target band (3%-6%).

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