Lesetja Kganyago, the governor of the South African Reserve Bank (SARB), says that the recent rate hike marks the beginning of restrictive monetary policy in the country.
This is despite the fact that it is the tenth-rate hike since November 2021, totalling 465 basis points in total.
On Thursday (25 May), the SARB, raised interest rates 50 basis points again in an attempt to tame inflation – ramping the repo rate up to 8.25% and a prime lending rate at 11.75%.
These are the highest repo interest rate and prime lending rates since the global financial crisis in 2009.
Notably, all members of the Monetary Policy Committee (MPC) unanimously voted in favour of the 50 basis point hike.
The rate hike adds financial pressure to the already cash-strapped South Africans struggling to make ends meet and pay monthly instalments.
When questioned whether how long the policy will remain restrictive, Kganyago said that monetary policy has only just become restrictive, so it is difficult to say.
“We have just become restrictive for some time; although we have been tightening, we have now reached restrictive territory,” said the governor.
How long the interest rates will remain restrictive depends on the state of the economy rather, than a specific time period or duration.
“There will not be a relaxation policy until the inflation trajectory changes the target range (CPI between 3%-6%) on a forward-looking basis. If we expect inflation will be reaching the target by this time, it might be on a risk-adjusted basis,” Kganyago said.
He said that South Africans would benefit from this tightening in the long term, although it adds short-term pain.
“At the current repurchase rate level, the policy is restrictive, consistent with elevated inflation and risks,” he said. “Guiding inflation back towards the mid-point of the target band can reduce the economic costs of high inflation and achieve lower interest rates in the future.”
According to the SARB, load shedding has remained a sticking point for domestic inflation.
Recent data from Statistics South Africa showed that April inflation is currently at 6.8%, 0.3% down from the surprise increase in March 7.1%. This was better than market expectations, thanks to a decrease in fuel inflation.
However, food inflation has remained tricky at 13.9%, 0.1% down from a 14-year high of 14%.
Adriaan Pask, the CIO of PSG Wealth, said that while local inflation is still above the upper limit of SARB’s target range, he expects it to decrease as the SARB’s interest rate hikes filter through.
Read: Reserve Bank hikes rates by another 50 basis points
