Sarb hikes rates by 25 basis points

January 26, 2023

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has voted to hike interest rates by 25 basis points (bp), taking the country’s repurchase rate to 7.25%.

The prime lending rate will increase to 10.75%.

The latest rate hike marks the ninth hike in the current cycle, with the total adjustment being 375 basis points since the hike cycle started in November 2021.

The move was broadly in line with market expectations, with analysts and economists anticipating a 25bp or 50bp hike. Most forecast a 50bp hike.

According to Reserve Bank governor Lesetja Kganyago, the vote was not unanimous, with three members voting for a 25bp hike and two preferring a 50bp move.

Load shedding was flagged as having a massive impact on the economy, with Kganyago noting the Reserve Bank expects the duration, impact and levels of rolling blackouts to be much higher than previously anticipated.

As a result, 2023’s growth expectations are severely truncated at 0.3% for the full year, while the risk outlook is elevated.

“For 2023, and as a result of extensive load shedding and other logistical constraints, the bank now forecasts GDP growth of only 0.3%. Given the scale of load shedding, the bank estimates that it deducts as much as two percentage points from growth in 2023, compared to the previous estimate of 0.6 percentage points,” he said.

Looking at 2022’s results, the bank forecasts no growth in the fourth quarter of 2022. For the whole of last year, GDP growth of 2.5% is expected, up from previous forecasts of 1.8%.

Over the medium term, the forecast takes into account ongoing high levels of load shedding and more modest household spending and investment growth than previously.


The inflation outlook shows strain, with headline and core inflation likely to remain under pressure due to various conditions – with risks on the upside, Kganyago said.

Positively, fuel price inflation is projected to come down. However, electricity price inflation is seen to be higher. Food price inflation is also expected to remain high for the year, given the prevailing conditions, the governor said.

Local electricity price inflation has been revised higher at 12.9% in 2023, 14.5% in 2024, and 10.9% in 2025.

Load shedding will keep the pressure going, affecting the cost of living and the cost of doing business generally in South Africa, he said. Headline inflation in 2022 came out at 6.9%. The Bank’s forecast of headline inflation for 2023 is unchanged at 5.4% and is slightly higher at 4.8% for 2024. In 2025 we still expect headline inflation of 4.5%.

Headline inflation is only expected to sustainably revert to the mid-point of the target range by the fourth quarter of 2024.

“Against this backdrop, the MPC decided to increase the repurchase rate by 25 basis points to 7.25% per year, with effect from the 27th of January 2023,” Kganyago said.

Speaking on the possible ‘terminal’ point for local interest rates, the governor said that the bank does not target interest rates – it wants to stabilise prices. Interest rates are one tool the bank uses to do it.

Inflation, globally, is at an elevated level, and consumers are intolerant of high prices. The Central Bank’s responsibility is to bring price stability, hence the rate hike, Kganyago said.

“So we don’t know (the terminal rate). What we do know is that inflation is here, and it is a problem,” he said.-Bustech

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Last modified on Thursday, 26 January 2023 17:22

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