Since November 2021, when the SARB started raising rates, South Africa has seen a cumulative 375 basis points increase from a low of 3.5% for the repo rate and 7% for the prime lending rate. This has added significantly more pressure onto consumers with asset-backed credit, such as bonds and vehicle finance.
Against this recent backdrop, the monetary policy committee (MPC) decided to increase the repurchase rate by 50 basis points to 7.75% per year, with effect from the 31st of March 2023. Three members of the MPC preferred the announced increase.
Two members preferred a 25 basis points increase (which was the option that many economists and citizens anticipated). This thus points to an interesting divide between the MPC members. In fact, even before the announcement, the MPC members were divided on whether this will be the rate peak: 55% of panellists expected March to be the peak of this rate cycle, while 23% thought the rate would peak in May and an additional 18% expected the peak to hit later this year or early next year.
In any case, the SARB states that the revised repurchase rate is now less accommodative and is more consistent with the current view of risks to inflation. The aim of the policy is to anchor inflation expectations more firmly around the mid-point of the target band and to increase the confidence of attaining the inflation target sustainably over time.
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