MPC hikes Interest rates by 25 basis point to 6%

Posted On Thursday, 23 July 2015 19:44 Published by
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The South African Reserve Bank’s Monetary Policy Committee (MPC) raised the key monetary policy interest rate – the repurchase, or repo rate – by 25 basis points from 5,75% to 6% per annum.

Lesetja Kganyago South African Reserve Bank

Absa consequently announced that its prime lending and variable mortgage interest rates will rise from 9,25% to 9,5%, effective from 24 July 2015. Lending rates have been hiked by a cumulative 100 basis points since the start of 2014.

The latest interest rate hike came against the background of trends in and expectations regarding domestic inflation and some of its major impacting factors, such as the exchange rate, food inflation, fuel prices, electricity costs, as well as the prospect of rising interest rates in the United States later this year.   

The headline consumer price inflation rate is on a rising trend after bottoming below 4% year-on-year (y/y) in February. International oil price trends, rand exchange rate movements and an increase in fuel taxes contributed to higher fuel prices in recent months, while severe drought conditions in some areas will lead to upward pressure on food inflation. Core inflation remained relatively stable around 5,7% y/y since June last year.

The Reserve Bank’s forecast for headline consumer price inflation is 5% in 2015, 6,1% in 2016 and 5,7% in 2017. Core inflation is projected at 5,6% in 2015, 5,4% in 2016 and 5,2% in 2017.

Growth in real Gross Domestic Product (GDP) is forecast by the Reserve Bank at 2% in 2015, 2,1% in 2016 and 2,6% in 2017.  

According to ABSA, interest rate movements are expected to remain largely data dependent over the next 12 to 18 months, impacted by developments on the macroeconomic front, inflation expectations and trends in the factors driving inflation.

Further rate hikes are expected towards year-end and in 2016 on the back of mounting inflationary pressures. Rising interest rates will drive debt repayments and debt-service costs to higher levels, affecting household and business finances, consumer and business confidence, the demand for and affordability of credit, and consumption expenditure and fixed investment.   

 

Last modified on Friday, 24 July 2015 08:28

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