Reserve Bank raises repo rate to 4%, as expected

As widely expected, South African Reserve Bank (Sarb) governor Lesetja Kganyago announced a 25 basis points increase in the repo rate on Thursday, taking the key rate that it lends to commercial banks to 4%.

This means that the prime lending rate of commercial banks will increase to 7.5%.

The decision follows the conclusion of the Sarb’s first Monetary Policy Committee (MPC) meeting of 2022 and comes on the back of spiking inflation both locally and internationally.

Kganyago said four members of the MPC voted in favour of a 25 basis points hike, while one member vote to hold the rate.

The bank has also flagged “upside risk to the inflation outlook”.

MPC DECISION: #MPCJAN22 pic.twitter.com/sRwwvoXqA1

— SA Reserve Bank (@SAReserveBank) January 27, 2022

Kganyago also revealed that Sarb now expects SA’s GDP growth rate for 2021 to come in lower at 4.8%, compared to a forecast of 5.2% as its last MPC meeting in November.

“Last year saw the ongoing recovery of the South African economy from the pandemic, but also [saw] the damage caused by the July unrest, cyber attacks and strikes.”

“Those factors led to a downward revision to the growth forecast for the year as a whole, from
the 5.2% forecast in November to 4.8%,” explained.

“This year and next, economic growth will remain well above a low rate of potential growth. GDP is expected to grow by 1.7% in 2022. The deceleration in growth from 2021 to 2022 is primarily a result of the fading rebound from the pandemic, alongside a climbdown from high export prices. GDP growth is forecast to be 1.8% in 2023 and 2.0% in 2024,” he added.