The Reserve Bank’s Deputy Governor, Kuben Naidoo, says they are dealing with a drastically changing economic environment.
Rising inflation has become a serious concern for both real incomes and consumption, with food prices and transport costs showing upwards trends.
Higher interest rates are also likely to weigh on consumers, with economists forecasting a further one percentage point repo rate increase this year, the equivalent of a 25 basis point hike in every Reserve Bank monetary policy committee meeting until the end of the year.
The bank has already hiked interest rates by 75 basis points, a 20% increase for the repo rate.
It has warned that the rising cost of living could lead to social unrest.
Naidoo says, “We started normalising interest rates in November. Our view is that we will want to normalise gradually over a two to three-year period. The three-and-a-half percent was artificially law, induced by COVID. But we thought we were in a pretty good space, we could act slowly and gradually as the economy recovered. But the war in Ukraine has changed that. And also inflation has changed that equation and we’ve had to hike a little bit faster than probably would otherwise have done.”
VIDEO: South African Reserve Bank MPC announces interest rates: