Reserve Bank raises repo rate

South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has made the decision to hike the repo rate by 25 basis points to 6.25% with the prime-lending rate up to 9.75%.

This announcement from SARB Governor, Lesetja Kganyago, comes after a two day meeting to formalise this decision by the MPC.

The decision comes amidst concerns that food and power prices will hike up inflation – while Kganyago remains concerned that the economy is failing to create enough jobs to inscrease economic growth.

“The SARB’s Monetary Policy Committee (MPC) hiked the repo rate by 25 basis points to 6,25% per annum. Commercial banks will raise prime lending and variable mortgage interest rates by the same magnitude to 9,75% per annum. Today’s hike was announced against the background of expected inflationary pressures due to the lagged effect of the severe drought on food prices, a weakening rand exchange rate and the prospect of rising interest rates in the United States before year-end and during next year” says Absa’s Senior Economist, Jacques Du Toit.

“Further hikes in lending rates are forecast for 2016, which will cause debt repayments to increase, contributing to additional financial strain on consumers.

“Banks will continue to monitor economic and consumer-related trends, possibly impacting their risk appetite and lending criteria” Du Toit continued.

Kganyago also concedes that it is clear that food prices will undoubtedly also be on the rise:

“The increase intensity of the drought which has led to downward revisions of the domestic maize crop estimate suggests that an acceleration in food price inflation is likely, adding to upside risk to the inflation outlook.”