Repo Rate Increase Means Higher Debt Repayments

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The South African Reserve Bank’s Monetary Policy Committee (MPC) has announced an increase in the repo rate. The increase means that the repo rate has increased three times since November 2021.

 


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SARB Governor Lesetja Kganyago has announced that the repo rate will increase by 50 basis points. The announcement was made on Thursday following an MPC meeting on Wednesday.

The announcement by Kganyao means that the repo rate will rise to 4.7% per year. This is the third consecutive increment following a two 25 basis points hike in November 2021 and in January 2022.

This also means that the prime lending rate, the rate that commercial banks charge customers when lending money, is now 8,25%. This is bad news for consumers as their debt installments will increase.

Kganyago said the 50 basis point increase was caused by higher food and fuel prices. He said their mandate is to protect the income of consumers and spoke of the importance of capping inflation.

He said, “The policy stance that we are taking here, we deem it to be appropriate and to be responding to the cries of South Africans. When prices are rising we have got a responsibility to cap inflation because inflation is eating into the incomes of the working people in South Africa”.

While the food prices will stay high, fuel price inflation should ease in 2023, helping headline inflation to fall to 5.0%. This is despite slightly higher core inflation. Headline inflation of 4.7% is now expected in 2024.

“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 KwaZulu-Natal and the continued electricity supply constraints”, concluded Kganyago.

 

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