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Repo rate hiked to stop inflation spiral

Reserve Bank Governor Lesetja Kganyago announced that the repo rate will increase by 25 basis points.

Reserve Bank Governor Lesetja Kganyago announced that the repo rate will increase by 25 basis points. Picture: Reinart Toerien/EWN

JOHANNESBURG - Economists agree that the Reserve Bank has hiked the repo rate as a precautionary measure to stop a possible inflation spiral.

South African Reserve Bank (Sarb) Governor Lesetja Kganyago announced that the repo rate will increase by 25 basis points to stop inflation from exceeding the bank's target range of between three and six percent.

Nedbank economist Isaac Matshego said as bond and car repayments will now increase, consumers will spend less and this is bad news for growth.

"That is likely to force consumers to cut back on discretionary spending and of course that will work on the demand side of the economy further."

FNB chief economist Sizwe Nxedlana said to make matters worse for consumers, more increases may be on the way.

"We do think that the Sarb is not done given the risk surrounding the inflation outlook."

With most companies basing salary increases on the inflation rate, many will argue that rising municipal and food costs, e-tolls and now a rate increase, will leave them battling to make ends meet.