Inflation-busting rate hike: 'Full impact on economy will only be felt in 2023'
Paula Luckhoff | Bruce Whitfield interviews economist Goolam Ballim (Standard Bank) after the Reserve Bank announced a repo rate increase.
The South African Reserve Bank (Sarb) has raised its repo rate by 75 basis points to 5.5%.
The hike brings the prime lending rate to 9%.
Governor Lesetja Kganyago announced the Monetary Policy Committee (MPC) decision on Thursday afternoon.
Three MPC members supported the 75 basis point increase; one voted for 50 basis points and another wanted a more aggressive 100 basis point hike. (Read the full MPC statement here)
What is the biggest rate increase in nearly 20 years (since September 2002) follows Thursday's announcement of a record jump in inflation.
The South African Reserve Bank’s MPC has decided to increase the repurchase rate by 75 basis points to 5.50% per year, with effect from the 22nd of July 2022. pic.twitter.com/WPqzaO7zR8— SA Reserve Bank (@SAReserveBank) July 21, 2022
The Reserve Bank has revised its headline inflation outlook upwards to 6.5% for this year, from its previous forecast of 5.9%.
Among the inflationary concerns Governor Kganyago listed are a continued rise in oil prices and subdued growth, domestic and global.
Bruce Whitfield gets comment from Goolam Ballim, Group Chief Economist at Standard Bank.
Ballim says the 75 basis point increase is enough of a signal of an assertive central bank.
It is the fifth rate hike since November last year, and it's the cumulative effective that is going to knock consumers.
To remind your listeners - we started off from a repo rate of 3.5% and the 75 basis point increment today takes the repo rate to 5.5%... so since the bottom of the cycle, through much of the pandemic, cumulatively the lending rate generally speaking has risen by two percentage points.Goolam Ballim, Group Chief Economist - Standard Bank
Why also the **single** increment of 75 basis points matters, is in its signalling - that the Reserve Bank will be ultra-orthodox in its approach to inflation. It's not going to relinquish the idea that it can curb inflation by managing expectations... and ultimately have inflation revert to within the 3-6% target zone.Goolam Ballim, Group Chief Economist - Standard Bank
This is about the Reserve Bank's credibility, and 75 basis points is with the aim of locking in that credibility.Goolam Ballim, Group Chief Economist - Standard Bank
He points out that South Africa has seen inflation rise faster than interest rates.
"Yes, interest rates have risen, monetary policy has tightened, but it is not overtly tight."
Watch the Reserve Bank Governor's address below:
Listen to Ballim's analysis of the outlook for inflation and further rate hikes:
This article first appeared on CapeTalk : Inflation-busting rate hike: 'Full impact on economy will only be felt in 2023'