'Yes, 50-point rate hike is painful, but Sarb has to tackle inflation upfront'

Bruce Whitfield interviews Citibank economist Gina Schoeman after the South African Reserve Bank announced a repo rate increase.

Screengrab of Sarb Governor Lesetja Kganyago announcing rate hike on 19 May 2022, @SAReserveBank

The South African Reserve Bank (Sarb) has raised its repo rate by 50 basis points to 4.75%.

The hike brings the prime lending rate to 8.25%.

Governor Lesetja Kganyago announced the Monetary Policy Committee (MPC) decision on Thursday afternoon.

Just one out of the five Committee members voted for a lower rate increase of 25 basis points. (Read the full MPC statement here)

Related stories:

Inflation unchanged at 5.9% ahead of interest rate decision

'25-basis-point rate hike paves way for 50-point hike if inflation expands'

Thursday's announcement means interest rates have been hiked by 125 basis points since last November to bring inflation under control.

Kganyago cited rising electricity and fuel prices as principal drivers of inflation risk.

Bruce Whitfield interviews Gina Schoeman (Economist at Citibank) who affirms that the Reserve Bank is trying to get ahead of inflation.

I know it's painful, especially if you have variable rate credit... but remember what the Governor has been saying time and time again: If they don't control for inflation they'll just have to hike by more over the medium term than if they try and tackle it upfront.

Gina Schoeman, Economist - Citibank

We're expecting another 50 and I know that makes everyone a bit scared, but after that we think that they will have done quite a good job and they can probably revert back to 25 basis points after that.

Gina Schoeman, Economist - Citibank

We need to bear in mind the interest rate cuts implemented during the Covid crisis she says.

The way the Sarb thinks about these things, if monetary policy is still relatively accommodative, yes rates might still rise, but they'll still be below pre-Covid levels...

Gina Schoeman, Economist - Citibank

... I would argue that by trying to ensure price stability, trying to keep inflation low for consumers, that's how they help growth.

Gina Schoeman, Economist - Citibank

Listen to Schoeman's in-depth analysis in detail below:

More in Multimedia