Reserve Bank revises headline inflation to 5.8%

The Reserve Bank’s forecast of headline inflation for this year has been revised higher to 5.8%  from 4.9%  due to the higher food and fuel prices.

The bank’s monetary policy committee decided to increase rates by 25 basis points which takes the repo rate to 4.25% and the banks’ prime lending rate to 7.75%.

Reserve Bank Governor Lesetja Kganyago says the bank has also revised upwards economic growth to 2% this year, from 1.7%  since its January meeting.

“The risks to the inflation outlook are assessed to the upside. Global producer price and food price inflation continued to surprise higher in recent months and could do so again, particularly if the war in Ukraine persists into the growing season. Oil prices increased strongly through 2021 and are up again sharply year to date, propelled higher also by the war and economic sanctions.”

MPC interest rate announcement: 

Repo rate decision

The bank says the current repurchase rate reflects an accommodative policy stance that will keep financial conditions supportive of credit demand, as the economy continues to recover.

Kganyago says three members of the committee preferred the announced increase and two members preferred a 50 basis point rise in the repo rate.

“Some risks to the inflation outlook, like food and fuel, have been realised, and other risks, such as currency volatility and capital flow reversals, have become more pronounced. Against this backdrop, the MPC decided to increase the repurchase rate by 25 basis points to 4.25% per year, with effect from the 25th of March 2022. Three members of the committee preferred the announced increase and two members preferred a 50 basis point rise in the repo rate.”

Chief Economist At Sanlam Investments Arthur Kamp says the supply challenges experienced in the economy are not just because of the conflict in Ukraine but they have been building up due to the coronavirus pandemic: