SA Reserve Bank announces eighth consecutive interest rate hike — of 25 basis points

The interest rate hike of 25 basis points this week, taking the repo rate to 7.25% and the prime interest rate to 10.75%, was the eighth consecutive increase in the current upward rates cycle. However, it was somewhat lower than widely held expectations of a 50 or even 75 basis points increase. 

The SA Reserve Bank began hiking rates fairly early in the current cycle, and having front-loaded its tightening, is now in a position to taper as global and local inflationary pressures begin to fade. Three members of the Monetary Policy Committee preferred the 25 basis points increase, while two members voted for a stronger increase of 50 basis points. 

Frank Blackmore, the lead economist at KPMG, says the increase makes sense. “We are already at high levels of interest rates. They could have been punitive with an increase of 50 basis points, but by choosing smaller increments, it buys the ability to do something to address inflation without harming the economy.”  

Reserve Bank Governor Lesetja Kganyago says although the South African economy grew by a relatively strong 1.6% in the third quarter of 2022, the expansion was not broad-based. 

“We forecast no growth in the fourth quarter. For the whole of last year, GDP growth of 2.5% is expected (up from 1.8%). For 2023, and as a result of extensive load shedding and other logistical constraints, the bank now forecasts GDP growth of only 0.3%,” he says.