Lesetja Kganyago, the governor of South African Reserve Bank has yet again, announced an anticipated interest rate hike in the repurchase rate by 25 basis points to 7% in order to manage certain uncool economic conditions of South Africa.
The decision as agreed by the Monetary Policy Committee (MPC) of South Africa will take effect come 18th March. The interest rate have previously been increased twice recently. For instance, MPC increased the repurchase rate by 50 basis points to 6.75% in January.
Already the prime interest rate is now at 10.5% but analysts are predicting that many more increase will happen this year.
Speaking, Kganyago explained that the hike is necessary for the economy to survive. “Given upside risks to inflation forecast and the protracted period of the expected breach, MPC decided that further tightening was required,” he said.
He related that since the previous meeting of the Monetary Policy Committee, ” headline inflation has exceeded the upper end of the target range as pressures from higher food prices in particular have intensified.
Although the longer-term inflation outlook has improved somewhat, inflation is still expected to remain outside the target range for an extended period, and upside risks remain.”
Based on what the governor said, the prospects for internal economic growth of South Africa is still fragile where as the global economic prospects is uncertain.
In South Africa, the annual economic growth of 1.3 per cent in 2015 was in line with expectations. “But the forecasts for 2016 and 2017 have been revised down from 0.9 per cent and 1.6 per cent, to 0.8 per cent and 1.4 per cent,” respectively.
“Food prices have been accelerating faster than previously expected, due to the weaker exchange rate and the intensification of the drought, resulting in an upward revision to the food price forecast,” Kganyago added.