Reserve Bank expected to increase repo rate on Thursday

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The South African Reserve Bank (SARB) is expected the increase once again the repo rate when it makes the announcement on Thursday.

Economists say the central bank will likely hike by anything between 25 and 50 basis points.

This, as the bank tries to bring down inflation which has been above its target bracket for exactly a year this month.

Consumers continue to battle the high cost of living, and it does not look like things are about to get any better.

Food and fuel inflation remain upside risks and it’s expected the rolling blackouts will also add salt to the wound.

This has businesses investing in alternative energy to keep operations going and passing some of those costs to consumers.

The weak rand – dollar exchange rate is also not helping matters.

Uncertainty about what caused the rand to crash:

The local currency has been above the R19 mark – meaning imports are more expensive.

Efficient Group chief economist, Dawie Roodt says, “Developments in the past couple of weeks, especially the last two weeks or so, resulted in significant volatility in the exchange rate of the currency as well as a much weaker capital market. The result of that is more inflation expectations and actually more inflation going forward and I am afraid the reserve bank is likely to increase interest rates again.”

“Now in order to curb inflation and especially inflation expectation, I expect the Reserve Bank to increase interest rates by another 50%, bringing the repo rate to 8.5%. I am afraid many people will blame the reserve bank for this, but if we want to blame somebody, we have to blame politicians for mismanaging the economy.”

“But especially mismanaging recently the political situation in South Africa relations with many of the major economies and other countries in the world,” adds Roodt.

The high interest rate environment will have dampening effect on the already weak economy.

Founder and economist at Antswisa Management Group, Miyelani Mkhabela says, “It will be difficult for growth prospects for corporates and small business. Because when rates are high, it is expensive to have a credit facility. But on the side of consumers, it will be difficult for retail market to boom.”

“Consumers are deeply pressed. So from both contexts, these are indications that the economy will not really thrive as expected. When we look at the forecast we had at the beginning of the year, whether is 1%, whether it’s 2%, depending on the economy, I believe that we might grow at below 1%,” adds Mkhabela.

The Reserve Bank anticipates the local economy to grow at 0.2% this year, mainly to blame is the electricity crisis.

The video below is reporting on the previous repo rate: