Reserve Bank increased the repo rate by 50 basis points to 4.75% per year

The South African Reserve Bank (Sarb) has raised its repo rate by 50 basis points to 4.75%. The hike brings the prime lending rate to 8.25%.

Governor Lesetja Kganyago announced the Monetary Policy Committee (MPC) decision on Thursday afternoon.

According to Kganyago rising electricity and fuel prices as principal drivers of inflation risk.

#MPCMay22 The Bank’s forecast of headline inflation for this year is revised higher to 5.9% (from 5.8%), primarily due to the higher food and fuel prices.”

The economy is expected to grow by 1.7% in 2022, revised down from 2.0% at the time of the March meeting. This is due to a combination of short-term factors, including the flooding in Kwa-Zulu Natal and the continued electricity supply constraints.”

Just one out of the five Committee members voted for a lower rate increase of 25 basis points.

Kganyago is concern about the ongoing war in Ukraine and Russia.

“Russia’s war in the Ukraine is likely to persist for the rest of this year and may have significant further effects on global prices. Oil prices increased strongly from the start of the war and may rise more as stresses in energy markets intensify. Electricity and other administered prices continue to present short- and medium-term risks. Higher diesel and coal prices may result in upward revisions to our electricity price forecast for 2023. Given below-inflation assumptions for public sector wage growth and higher petrol and food price inflation, considerable risk attaches to a still moderate nominal wage forecast.”

[Read the full MPC statement here]

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