South Africa Hikes Key Interest Rate to 4%
South Africa Hikes Key Interest Rate to 4%
The South African Reserve Bank lifted its benchmark repo rate by 25 bps to 4% at its January 2022 meeting, as widely expected.
This is the second consecutive hike due to increased inflation risks and despite the economy still recovering from the fourth wave of Covid-19 infections driven by the Omicron variant.
The Committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates. In December, headline inflation accelerated further to 5.9%, above market expectations of 5.7% and moving closer to the top of the SARB’s target range of 3-6%. Headline CPI forecast has been revised slightly higher to 4.9% in 2022 (vs 4.3% in November) but lowered to 4.5% in 2023 (vs 4.6%). Meanwhile, the GDP growth projections were kept unchanged at 1.7% for 2022 and 1.8% for 2023. The central bank's model indicates gradual normalisation in the first quarter of 2022, and into 2023 and 2024.
In South Africa, the interest rates decisions are taken by the South African Reserve Bank’s Monetary Policy Committee (MPC). The official interest rate is the repo rate. This is the rate at which central banks lend or discount eligible paper for deposit money banks, typically shown on an end-of-period basis.
This means that the prime lending rate of commercial banks will increase to 7.50%, and marks only the second interest rate hike in three years as inflation remains a huge concern.
How does the repo rate affect me?
Because other lending and interest rates are linked to the repo rate, a increase in the repo rate will mean that the interest on your house and vehicle payments or savings and investment products may increase too. This means that the monthly repayments for your debt will increase.
When the repo rate increase Interest rates on your debt will increase but the good news is that the interest rates on savings and investment products will increase too. This is the perfect time to start saving towards that one goal you have been putting off.