Johannesburg – South Africa’s central bank raised its benchmark interest rate by three-quarters of a percentage point to 5.5% on Thursday – the steepest hike in a decade.
The move – announced a day after South Africa reported a 13-year high in inflation – was the fourth rate hike in a row, as the South African Reserve Bank voiced concerns over high inflation and weak economic growth.
The central bank “decided to increase the repurchase rate by 75 basis points to 5.50% per year”, with effect from Friday, said governor Lesetja Kganyago said during a televised media briefing.
“We hear the cries of South Africans that inflation is eroding their income, their salaries and their wages,” he said.
“And we are determined as the South African Reserve Bank to protect the income of South Africans.”
The rate lift was higher than market analysts’ forecasts of an increase of 50 basis points.
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Inflation has soared to the highest level in decades in many countries, fuelled by the war in Ukraine and the easing of Covid restrictions.
That has forced central banks across the globe to hike interest rates, risking the prospect of recession as higher borrowing costs hurt businesses and consumers.
But on Wednesday the country’s statistics agency, StatsSA, said annual consumer inflation had jumped to 7.4 percent in June –- the highest reading since 2009 – driven by rising prices for food and transport.
Kganyago said the rate increase aimed to help bring inflation back down to the bank’s target band of three to six percent.
Kganyago also announced updated economic forecasts.
He said the South African economy is now expected to grow by two percent to this year, an upwards revision from the May forecast of 1.7 percent.
That is still a drop from the 4.9% growth South Africa registered in 2021.
Growth is expected to slow down further to 1.3% in 2023, before edging higher to 1.5% in 2024, which are downward revisions, he added.
The bank revised higher its forecast of headline inflation for this year to 6.5%.