The South African Reserve Bank (Sarb) ratcheted the repo rate by 75 basis points on Thursday to 7%, as widely expected.

This is the second consecutive hike by such a margin and the seventh hike in a row, as part of hawkish moves by the bank’s Monetary Policy Committee (MPC) to bring spiking inflation under control. 

This is well into pre-pandemic levels, with the Sarb having no option but to announce another sharp repo rate hike after headline inflation for October surprised on the upside at 7.6%. 

Even before the October consumer price index (CPI) was published on Wednesday, most economists and market commentators locally were forecasting a 75bps hike.

This after two members of the Sarb’s MPC wanted a 100bps hike at the bank’s last meeting in September, together with higher petrol and diesel prices fueling inflation. 

This signals the Sarb tempering possible moves of further hikes of 75bps or more in the current hiking cycle.

Addressing media questions following the MPC announcement, Kganyago said October’s CPI reading surprised the Sarb, with its expectations of headline inflation to come in at 7.3%.

Earlier, in announcing the repo rate decision, he noted that risks to the inflation outlook were now “assessed to the upside”.

Kganyago said the Sarb’s headline inflation forecast is now slightly higher for 2022 at 6.7%, and 5.4% for 2023, respectively. 

Other highlights

Global recession risk is high, economic growth slowing.
Sarb’s forecast for global growth revised lower to 1.9%.
Sarb expects the SA economy to grow 1.8% in 2022, 1.1% in 2023 and 1.4% in 2024 (below previous forecasts), and 1.5% for 2025.
Risks to the medium-term domestic outlook assessed to the downside.
Oil price forecast at US$102 for 2022, US$92 in 2023.
Current account balance forecast at -0.2% of GDP in 2022; -1.5% in 2023; -1.9% in 2024; -2.1% in 2025.
Fuel price inflation up 33.3% for 2022, falling to 0.8% in 2023
Electricity price inflation forecast at 10.7% in 2022, 9% for 2023, 10% in 2024
Core inflation forecast 4.3%, 5.5% in 2023, 4.8% in 2024, and 4.5% projected for 2025.
Local food price inflation seen at 8.8% in 2022, 6.2% in 2023, 4.2% in 2024

Reaction

Reacting to the announcement, North-West University Business School economist Prof Raymond Parsons, said: “In line with market expectations, the MPC in a 3-2 majority vote today raised the repo rate by another 75 bps… The MPC’s statement and decision conveyed a further strong message about how the Sarb intends dealing with inflation in SA.”

With headline inflation and core inflation rising above market expectations, he noted that the Sarb still sees inflation risks on the upside in the immediate future.

“This reinforces the tough approach adopted at the MPC’s previous meeting on 22 September… It was therefore inevitable that, with inflation apparently stickier than expected, the MPC would robustly continue with the interest rate-raising cycle it originally commenced a year ago.” 

On the residential property front, Seeff Property Group chairman Samuel Seeff said the Sarb “has not brought any festive cheer to consumers and the property market with its latest [repo] rate hike”.

However, Seeff maintains that the outlook for the property market remains stable.

“The decision by the Reserve Bank to hike the repo rate by another 75bps to 7% [base home loan rate to 10.50%] for the seventh successive time now takes the rate to above the pre-pandemic level. While disappointed that the bank did not take the opportunity to pause, it is not a surprise and has been largely factored in by the market,” he adds.

According to Seeff, the latest rate hike will see home loan repayments over a 20-year period at the prime/base interest rate increase as follows:

R750 000 bond – extra R374 (repayment increasing from R7 114 to R7 488)
R900 000 bond – extra R448 (repayment increasing from R8 537 to R8 985)
R1 million bond – extra R499 (repayment increasing from R9 485 to R9 984)
R1.5 million bond – extra R748 (repayment increasing from R14 228 to R14 976)
R2 million bond – extra R998 (repayment increasing from R18 970 to R19 968)
R2.5 million bond – extra R1 247 (repayment increasing from R23 713 to R24 960)
Pam Golding Property Group CEO, Dr Andrew Golding, said the further 75bps repo rate hike “will certainly be met with some dismay by consumers having to contend with the rising cost of living coupled with the dampening effect of ongoing load shedding on South Africa’s fragile economy”.