The SA Reserve Bank recently held its Monetary Policy Committee Meeting, and announced a big 50 basis point increase in the repurchase rate.
This move came as a surprise to many, as analysts and economists had all been predicting a smaller more manageable 25 basis point hike.
The Repo rate now increases from 7.25% to 7.75%.
This decision marks the ninth consecutive rate hike by the Reserve Bank (with a total increase of 425 basis points since it began tightening policy back in November 2021).
Why Such A Big Hike?
The reasons behind the move are centered on combatting inflation, which has been a growing concern for the bank.
In particular, the recent low exchange rate of the Rand (especially vs the Dollar), high food and non-alcoholic beverage inflation, and power cuts have contributed to a spike in consumer price inflation, which stood at 7% in February. The SARB like to target a inflation rate somewhere below 6%. Food price increases have been incredibly high and consumers are feeling the pinch. So, this move is intended to try slow this down.
The immediate consequences of this latest increase in the Repo rate will be felt by consumers with debt, particularly those with vehicle asset finance and home loans.
The prime lending rate will increase to 11.25%, which means that large repayments will continue to grow. For those who have bonds of 1 Million will once again add another +-R300 odd rand to their repayments (like they did the last time the rate increased).
This increase may also have a knock-on effect on other areas of the economy, such as small and medium-sized enterprises, which may struggle to obtain loans at affordable rates. Many such businesses are currently looking at loans to address the ongoing Eskom energy crisis.
Still, the MPC feel this is the only way to bring inflation down and the majority favoured a bigger increase for a bigger impact.
