Another big hike raises interest rates in South Africa near pre-COVID levels

Another big hike raises interest rates in South Africa near pre-COVID levels

Written by Cubano Gombe and Anait Meridzanian

JOHANNESBURG (Reuters) – South Africa’s central bank raised interest rates again on Thursday, bringing the key lending rate back to levels close to pre-coronavirus levels as it struggled to bring inflation back to its target level.

The South African Reserve Bank raised its repo rate 75 basis points to 6.25%, in line with the expectations of the majority of economists polled by Reuters.

The rand pared its gains against the US dollar after the decision was announced, as some traders had taken a stance for a bigger rally.

The SARB has now raised interest rates for the sixth time in a row, adding a total of 275 basis points to the repo rate since the last tightening cycle began in November 2021.

Analysts said they expect the Reserve Bank of Australia to raise interest rates by a smaller margin at its last monetary policy meeting of the year in November.

โ€œIf the Reserve Bank raises rates by 50 basis points, I think we should be close to the end of the rate-raising cycle,โ€ said Tertia Jacobs, Treasury economist at Investec, adding that raising rates beyond that level could take policy. to a restricted area. .

The five-member Monetary Policy Committee (MPC) was split 3-2 in its latest decision, with three members favoring a 75 basis point increase and two wanting a 100 basis point increase.

Two MPC members favored a more aggressive move that surprised some economists, given that inflation in August fell to 7.6% year-on-year from 7.8% in July on the back of lower fuel prices.

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SARB is targeting inflation between 3% and 6%.

“Failure to deal with inflation now will hurt the economy in the future. That is what we are focusing on,” Bank Governor Lisitja Kjaniago told a news conference.

Although the central bank did not significantly change its economic growth and inflation forecasts for 2022, it stressed that a number of risks to the inflation outlook loom large.

More price shocks may come from the Russian war in Ukraine and the electricity and wage agreements, the bank said in a monetary policy committee statement. But Kaganiago told reporters that a lot could change between now and the November meeting given the volatile economic and financial conditions.

(Reporting and writing by Alexander Winning; Editing by James Macharia Cheg and Aurora Ellis)

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