South African Reserve Bank's Monetary Policy Committee hiked the repo rate by 25 basis points to 6,25% per annum

Posted On Thursday, 19 November 2015 17:42 Published by
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The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) raised the key monetary policy interest rate – the repurchase, or repo rate – by a further 25 basis points from 6% to 6,25% per annum. Due to this hike in the repo rate, Absa announced that its prime lending and variable mortgage interest rates will rise from 9,5% to 9,75% per annum, effective from 20 November 2015.


These lending rates form the basis for extending credit to consumers and the business sector, and have risen by a cumulative 125 basis points since the start of 2014.

The further hike in interest rates came against the background of trends in and the outlook for domestic inflation and some of its key driving factors, such as the rand exchange rate, food price inflation and electricity tariffs, as well as the prospect of rising interest rates in the United States in the near future and during next year.

The rand exchange rate has shown a significant depreciation since the beginning of the year, with severe drought conditions in large parts of the country being a major threat to near-term food price inflation. Higher interest rates in the US over the next 12 months may affect emerging market and developing country capital flows and exchange rates, which may impact inflation, interest rates and economic growth in these countries.    

The headline consumer price inflation rate averaged 4,5% year-on-year (y/y) in the first ten months of the year, with fuel price movements that contributed to inflation remaining within the 3%-6% target during the course of the year. Core inflation (see definition in the table below) averaged 5,5% y/y in the period of January to October.

The Reserve Bank’s forecast for headline consumer price inflation is 4,6% in 2015, 6% in 2016 and 5,8% in 2017. Core inflation is projected at 5,5% in both 2015 and 2016, with a forecast of 5,4% in 2017. Growth in real gross domestic product (GDP) is forecast by the Reserve Bank at 1,4% in 2015, 1,5% in 2016 and 2,1% in 2017.

The outlook is for domestic interest rates to rise further during the course of 2016 and 2017 to curb inflationary pressures and the possible effect of rising interest rates in other parts of the world. Rising interest rates will cause debt repayments and debtservice costs to increase, affecting household and business sector finances, consumer and business confidence, the demand for and affordability of credit, and consumption expenditure and fixed investment.

Highly interest rate-sensitive sectors, such as the property market and the vehicle sector, will reflect the impact of rising interest rates in levels of market activity, transaction volumes and buying patterns. 

Last modified on Friday, 20 November 2015 00:14

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