SA Reserve Bank governor Lesetja Kganyago
Photo by: Bloomberg
Interest rates were hiked by 25 basis points on Thursday, as the Reserve Bank slashed its expectations for growth this year.
Three members of the monetary policy committee voted in favour of the 25 basis point hike, while two wanted a 50 basis point increase.
The move brings the repo rate to 7.25%, and the prime rate to 10.75%. Economists polled by Bloomberg expect that rates may peak at 7.5% and that the first cuts could come as early as the fourth quarter of the year.
The SA Reserve Bank hiked rates by 75 basis points for three meetings in a row last year.
On a new home loan of R2-million at the prime rate, the latest increase hikes the monthly instalment by around R340. Since November 2021, monthly payments on a R2-million home loan are R4 800 more expensive due to a raft of rate hikes.
On Thursday, Governor of the SA Reserve Bank, Lesetja Kganyago, was gloomy about the outlook for the South Africa's economy.
The Reserve Bank now expects the economy to only grow by 0.3% this year, due in part to loadshedding. As recently as November, it expected growth of more than 1% in 2023.
The bank also slashed growth expectations to 0.7% in 2024 (down from 1.4%) and by 1.0% in 2025 (down from 1.5%).
"While economic growth has been volatile for some time, prospects for growth appear even more uncertain than normal," Kganyago said.
He expects that investment will decline amid weaker confidence and lower expected growth, while declining commodity prices mean exports are also forecast to be less robust.
While the bank lowered its growth expectations, it kept its headline inflation for 2023 unchanged at 5.4% - still above its target goal of 4.5%. It only expects inflation to reach this goal at the end of 2024.