31 May 2023
by Alani Janeke en Elgee Strauss
The South African Reserve Bank once announced yet another 50 basis point increase in the country’s interest rates this afternoon.
According to a statement, the South African Reserve Bank said this afternoon that the weakening of the rand, ongoing loadshedding, sharp increases in food prices, the inflation rate and higher-than-expected salary increases forced it to raise interest rates again. Interest rates were raised by 50 basis points in March this year as well.
The repo rate is currently 8,25% and the prime lending rate is 11,75%. The previous peak for interest rates was reached in March 2016 when the repo rate was 7% and the prime lending rate was 10,50%.
The Reserve Bank’s expectations in terms of the inflation rate for 2023 were raised to 6,2%. In March, it was predicted that it would be 6%. Furthermore, the Bank expects core inflation, which excludes food and fuel prices as well as power tariffs, to still rise sharply this year. This inflation reached a rate of 5,3% in April.
Moreover, ongoing loadshedding will push inflation up further this year as especially diesel-powered generators are used to power businesses like stores, bakeries, butcheries, and other production-intensive enterprises. Last week during the Nampo Harvest Day, Bayer SA said that loadshedding even influences the production and costs of grain seed, which will eventually then raise the input costs for the cultivation of grains.
The Reserve Bank expects that the inflation rate will only reach the 6% level in the third quarter.
Meanwhile, the rand-dollar exchange rate weakened further this afternoon following the announcement that interest rates were increased. By 16:00, the rand had reached a value of R19,68 against the dollar. Previously, the weakest rand value was when it recently weakened to R19.52/$ due to the issue regarding South Africa’s alleged involvement with weapons and Russia’s invasion of Ukraine.
Interest rate graphs
This is how the repo rate has changed since 2016. Source: South African Reserve Bank
