SA’a apex bank raises main lending rate to 7.25%

The South African Reserve Bank (SARB) decided to increase its main lending rate, also known as the repurchase rate, by 25 basis points to 7.25%. This means that the interest rate at which banks borrow money from the SARB has gone up, which in turn will affect the interest rates that banks charge their customers for loans, such as mortgages and car loans.

The decision to raise the rate was made by the bank’s Monetary Policy Committee (MPC), which is made up of several members who vote on the interest rate. In this case, three members of the MPC voted for the 25 basis point increase, while two members preferred a 50 basis point increase. The governor of the SARB, Lesetja Kganyago, explained that the revised repurchase rate will continue to support credit demand in the near term, while also bringing rates to levels that are more consistent with the bank’s current view of inflation and the risks that it poses to the economy.

Kganyago also noted that the ongoing power cuts, known as load-shedding, are having a negative impact on the economy. He stated that a material reduction in load-shedding would significantly raise growth. This refers to the measures taken by the state power utility to reduce electricity consumption, which has been in effect since around mid-last year. These power cuts have affected businesses and households, and have had a dampening effect on economic activity.

The SARB has also revised its economic growth forecast for the next two years. The bank now predicts that the economy will grow by 0.3% in 2023 and 0.7% in 2024, which is a more pessimistic outlook than their last meeting in November. Additionally, they anticipate consumer inflation of 5.4% in 2023 and 4.8% in 2024. The central bank’s target inflation range is between 3% and 6%.

Overall, the decision to raise the repurchase rate was made to address inflation concerns, and the bank’s forecast for economic growth and inflation reflect the uncertainty and challenges facing the South African economy in the coming years.