Interest Rate Hike:- The central bank of South Africa increased its benchmark interest rate to a level not seen in 14 years at its september 2023 and upgraded its estimate of inflation for this year. The governor did clarify that this does not signify the end of the cycle of hikes. He continued by saying that interest rates have peaked and that the further steps will depend on inflation. You should read Interest Rate Hike in this article if you want to learn more.
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Understanding Interest Rate Hike
For the first time since November 2021, the South African Reserve Bank chose to stop raising interest rates on Thursday. However, Governor Lesetja Kganyago quickly clarified that this did not indicate that the cycle of rate increases would finish. The bank announced on Thursday that its monetary policy committee of the South African Reserve Bank maintained interest rates at 8.25% as inflation estimates exceeded initial projections and the economy showed signs of improvement. Interest rates are determined in South Africa by the Monetary Policy Committee of the South African Reserve Bank. It was the South African Reserve Bank’s 10th increase in a row.
The official rate of interest is known as the repo rate. This rate is the amount that central banks lend to or discount for deposit money banks and it is often shown at the end of each period. The interest rate sometimes referred to as the repo rate is the price at which private companies, mostly private banks, can borrow money from the central bank and sets the standard for all other interest rates in the economy. These banks will then apply an interest rate on financial products which is usually set by the policy rate to their consumers.
Overview of Interest Rate Hike
| Article | Interest Rate Hike |
|---|---|
| Controlled By | South African Reserve bank |
| Department | Monetary Policy Committee |
| Current Interest Rate | 8.25% |
| New Expected Rate | 8.75% |
| Net Increase | 50 Basis Point |
| Next MPC Meeting Date | 23 November 2023 |
| Official Website | https://www.resbank.co.za/ |
Current Interest Rate Hike South Africa
The South African Reserve Bank kept its benchmark rate which was modified for inflation at 8.25 percent during its meeting in September 2023. The SARB has revised its inflation estimates from 6.0% to 5.9% with an average inflation rate of 5.9% projected in 2023. The repo rate increased by an additional 50 basis points in May 2023 from 7.75% to 8.25%. As of right now, analysts anticipate that the headline CPI will average 5.6% in the fourth quarter of 2023 with 5.2% forecast in September and 5.7% in October.
GDP growth is expected to increase to 0.4% in 2023 from the prior forecast of 0.3%. However, authorities did not reach a unanimous consensus with the major reasons being their concerns about the continued depreciation of the rand and the ongoing pressure on inflation. GDP growth in 2023 is predicted to increase to 0.4% from the initial 0.3%. However, concerns over the ongoing depreciation of the rand and the ongoing pressure on inflation were the primary drivers of the decision which was not reached unanimously.
Prediction Interest Rate Hike South Africa
Numerous analysts predict that before beginning rate reductions in the second quarter of 2024, the SARB will likely hike rates by a further 25 basis points at the November MPC. Thus, it is believed that the repo rate would reach 8.5% prior to two cumulative reductions of 50 basis points in 2024 and 2025.
Although researchers predict that inflation will only return to 4.5% in 2025, the CPI is predicted to be about 5.3% in 2024. The SARB also reduced its headline inflation forecasts for 2023 and 2024 to 6.0% and 5.0%, respectively. Therefore, average headline inflation for H2 2023 is anticipated to fall below the SARB’s target range.
History of Interest Rate Hike South Africa
The MPC has raised the country’s interest rate eleven times since November 2021. The repo rate had four 75 basis point increases culminating at a 14 year high of 8.25%. Despite being rather high on its own, the repo rate of 6.3% is projected to be the lowest since October 2021.
The SARB interest rate as of 2013 is shown in the table below.
| Year | Interest Rate |
| 2013 | 5 |
| 2014 | 5.75 |
| 2015 | 6.25 |
| 2016 | 7 |
| 2017 | 6.75 |
| 2018 | 6.75 |
| 2019 | 6.50 |
| 2020 | 3.50 |
| 2021 | 3.75 |
| 2022 | 7 |
The SARB’s next meeting on monetary policy is set for November 2023.
FAQs Interest Rate Hike South Africa
Which interest rate in South Africa was the highest?
South Africa had its highest interest rate to date with a repo rate of 23.99% in 1998.
What are the predicted interest rate forecasts for South Africa in 2024 and 2025?
The repo rate is expected to average around 7% in 2024 and 6% in 2025, according to Trading Economics.
Who is the South African Reserve Bank (SARB)?
The goal of South Africa’s central bank SARB is to maintain the Rand’s value. They try to do this through inflation targeting.
Why does the repo rate increase?
The SARB attempts to rein in inflation by raising the repo rate. The SARB targets an inflation rate of three to six percent although the current rate is seven percent.
How long will South Africa’s high interest rates last?
At the November MPC, the South African Reserve Bank (SARB) is expected to hike rates by an additional 25 basis points before starting rate cuts in the second quarter of 2024.