South African central bank raises interest rates by 25 basis points: repo rate is 7.25% and prime rate is 10.75%

Interest rates were hiked by 25 basis points on Thursday, as the Reserve Bank slashed its expectations for growth this year.

Three members of the monetary policy committee voted in favour of the 25 basis point hike, while two wanted a 50 basis point increase. A Reuters survey among economists showed that most expected a 50 basis point hike.

The move brings the repo rate to 7.25%, and the prime rate to 10.75%. Economists polled by Bloomberg expect that rates may peak at 7.5% and that the first cuts could come as early as the fourth quarter of the year. 

The SA Reserve Bank hiked rates by 75 basis points for three meetings in a row last year. 

On a new home loan of R2 million at the prime rate, the latest increase hikes the monthly instalment by around R340. Since November 2021, monthly payments on a R2 million home loan are R4 800 more expensive due to a raft of rate hikes.

On Thursday, Governor of the SA Reserve Bank, Lesetja Kganyago, was gloomy about the outlook for the South Africa’s economy. 

The Reserve Bank now expects the economy to only grow by 0.3% this year, due in part to load shedding. 

As recently as November, it expected growth of more than 1% in 2023. However, the bank now expects more than 200 days of load shedding this year, which it estimates will shave two percentage points off the growth rate. 

In other words: Without load shedding, the economy would have expanded by 2.3% in 2023. 

Kganyago lamented that the rolling power cuts are not only hurting growth but also fuelling inflation. 

Businesses and households must pay more to find power sources during load shedding. This is raising the cost of doing business, and the cost of living for all South Africans.


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