Higher electricity and fuel prices pinned as reasons for repo rate hike

Higher electricity and fuel prices leading to climbing inflation have been cited as the main reasons why the South African Reserve Bank has hiked the repo rate by 50 basis points.

SA Reserve Bank Governor Lesetja Kganyago. Picture: Cindy Archillies/EWN

JOHANNESBURG - Higher electricity and fuel prices leading to climbing inflation have been cited as the main reasons why the South African Reserve Bank (SARB) has hiked the repo rate by 50 basis points.

Reserve Bank Governor Lesetja Kganyago made the announcement on Thursday afternoon.

READ: SA Reserve Bank increases repo rate by 50 basis points to 4.75%

“The bank’s forecast of headline inflation for this year is revised higher to 5.9% [from 5.8%], primarily due to the higher food and fuel prices.”

Those with bonds and credit cards will now be paying substantially more for their debt as the bank moves to contain inflation.

South Africans saw considerable relief from the SARB at the start of the COVID-19 pandemic in March 2020 with a series of decreases in the repo rate.

But with global conditions changing with the war in Ukraine and high fuel and electricity prices, the situation has changed.

Kganyago said there were a number of factors driving inflation including electricity and oil prices driven by what was happening in Ukraine.

“Russia’s war in the Ukraine is likely to persist for the rest of this year and may have significant further effects on global prices. Oil prices increased strongly from the start of the war and may rise more as stresses in energy markets intensify. Electricity and other administered prices continue to present short- and medium-term risks. Higher diesel and coal prices may result in upward revisions to our electricity price forecast for 2023. Given below-inflation assumptions for public sector wage growth and higher petrol and food price inflation, considerable risk attaches to a still moderate nominal wage forecast.”

But he said the economy was set to expand albeit not at its potential recovering from the pandemic.

“Average surveyed expectations of future inflation have increased to 5.1% for 2022. Expectations for inflation based on market surveys have increased to 5.9%.”

The increased repo rate has been expected for some time but will still come as a blow for those already in debt.

The governor said the monetary policy committee would continue to monitor inflation and act further if needed.