South Africa’s central bank raised its key interest rates for the seventh straight policy session on Thursday to anchor inflation expectations more firmly around the mid-point of the target band and to increase confidence of attaining the inflation target sustainably over time.
The Monetary Policy Committee, headed by Governor Lesetja Kganyago, decided to increase the repurchase rate by 75 basis points to 7.00 percent from 6.25 percent, the South African Reserve Bank said. The decision was in line with economists’ expectations.
The previous change in the rate was also 75 basis points in September, followed by the same in July.
The level of the repurchase rate is now above the level prevailing before the start of the pandemic, the bank said in a statement.
By raising key rates, the bank aims to support credit demand in the near term, while raising rates to levels more consistent with the current view of inflation and risks to it.
Recent government data showed that South Africa’s headline inflation rose unexpectedly to 7.6 percent in October from 7.5 percent in September. That was well above the central bank’s target band of between 3.0 to 6.0 percent.
The central bank’s forecast of headline inflation for this year and next is slightly higher at 6.7 percent and 5.4 percent, respectively.
The SARB now expects the economy to grow by 1.8 percent this year, with 0.4 percent expansion estimated for the third quarter and only 0.1 percent growth for the last quarter of the year due to record load-shedding.
The bank hopes that guiding inflation back towards the mid-point of the target band can reduce the economic costs of high inflation and enable lower interest rates in the future.
Monetary policy decisions will continue to be data dependent and sensitive to the balance of risks to the outlook on the backdrop of an uncertain economic environment in the near future, the bank said.