The cost of living in South Africa continues to go up after the South African Reserve Bank (Sarb) increased the lending rate on Thursday.
Sarb governor, Lesetja Kganyago, raised the benchmark repo rate by 75 basis points to 5.50 percent per year.
The Monetary Policy Committee’s (MPC) interest rate-raising cycle started in November 2021, after it saw a period of lowering the rate during the pandemic.
Earlier in May this year, the MPC increased the repurchase rate by 50 basis points to 4.75% per year.
The latest hike will mean that the prime lending rate in South Africa will increase to 9 percent.
Kganyago’s announcement comes just a day after headline consumer inflation surged to a 13-year high in June driven by rising fuel and food prices.
Statistics South Africa (StatsSA) yesterday said the annual inflation rate in South Africa quickened to 7.4 percent in June from 6.5 percent in May, rising above market expectations of 7.2 percent.
This was the highest rate since May 2009 when the rate was 8 percent when the economy was facing the headwind of currency depreciation during the global financial crisis.
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“Many developing economies have yet to recover fully from the pandemic. Global economic conditions remain fragile,” Kganyago said.
“ Russia’s war in Ukraine will continue to impair production and trade of a wide range of energy, food and other commodities. The supply of energy to the Euro Area is limited as winter approaches, and is likely to reduce growth this year and next,” he added.
On the economy, the governor said, “The economy is forecast to expand by 1.3% in 2023 and by 1.5% in 2024, which is below the previous projection of 1.9% for both years at the time of the last meeting.”
“With rapid inflation & withdrawal of policy stimulus, the US will also experience slower economic growth. China’s recovery from the Covid-19 outbreak & resultant lockdowns remains uncertain,” Kganyago said.
Sarb expects oil prices to remain high
“Oil prices spiked to around US$130 per barrel in early days of the conflict in Ukraine. While oil prices currently sit at around US$106/ barrel, we expect them to stay higher than we did in May & to average US$108/barrel for 2022, US$92/barrel in 2023 & US$85/barrel in 2024,” Kganyago said.