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Reserve Bank hikes repo rate by 25 basis points

Nov 22, 2018
Reserve Bank hikes repo rate by 25 basis points

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) has increased the repurchase rate (repo) by 25 basis points, effective 23 November, Governor Lesetja Kganyago announced on Thursday. 

Kganyago said the increase was a result of “shocks of a persistent nature”, such as extended periods of currency depreciation, elevated oil prices and multi-year electricity price increases, which made it difficult to disentangle first- and second-round effects. 

“The approach of the MPC is to look through the first-round effects and focus on the possible second-round effects of supply side shocks. However, the MPC had to decide whether to act now or later. Given the relative stability in the underlying core inflation measure, delaying the adjustment could give the MPC room to re-assess these unfolding developments in subsequent meetings,” Kganyago said. 

He said delaying the adjustment could cause inflation expectations to become entrenched at higher levels and thus contribute to second-round effects, which would require an even stronger monetary policy response in the future. 

Decision to increase repo rate

“Against this backdrop, the MPC has decided to increase the repurchase rate by 25 basis points to 6.75% per year, effective from 23 November 2018. Three members preferred an increase and three members preferred an unchanged stance,” Kganyago said. 

The committee, he added, continues to assess the stance of monetary policy to be accommodative.

Monetary policy actions will continue to focus on anchoring inflation expectations near the mid-point of the inflation target range in the interest of balanced and sustainable growth. 

“As previously indicated, any future policy adjustments will be data dependent. The implied path of policy rates generated by the Quarterly Projection Model is for four rate hikes of 25 basis points, reaching 7.5% by the end of 2020. 

“The forecasted endogenous interest rate path is built into our growth and inflation outlook. As emphasised previously, the implied path remains a broad policy guide, which can and does change in either direction between meetings in response to new developments and changing risks,” said Kganyago. – SAnews.gov.za

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