This follows the increase of repo rate which increased by 50 basis points.
JOHANNESBURG – Some economists have warned that the South African Reserve Bank has little room for mistakes in monetary policy following a bold move to increase the repo rate by 50 basis points.
Initial predictions put the repo rate increase at 25 basis points, but the central bank said higher inflation and the impact of crippling power cuts warrants the decision.
The repo rate sits at 7.75% while the prime lending rate sits at 11.25% following Thursday’s announcement.
The central bank said fuel, food and electricity prices remain a major concern as it tried to bring down inflation.
Nedbank economist Isaac Matshego said while he expected an increase in the repo rate, he was surprised by the hawkish tone.
“Reading into it would suggest that maybe there could be one more interest rate hike in this cycle.”
While there have been expectations for the bank to take more drastic measures to revive growth, including calls to lower interest rates, Matshego said the central bank could afford to sacrifice economic growth while it tried to bring inflation down.
“Inflation just erodes the purchasing power of money and the other issues that are holding back economic growth have got to be addressed as a matter of urgency.”
Efficient Group economist Dawie Roodt said the government’s inefficient macro-economic policies are to blame.
“The reserve bank is simply doing what they’re supposed to be doing and that is to protect the value of the rand.”
Meanwhile, consumers are expected to battle higher living costs amid predictions of higher fuel costs next week.