The South African Reserve Bank (SARB) Governor Lesetja Kganyago yesterday announced that the Monetary Policy Committee (MPC) voted 3 – 2 to hike the repurchase interest rate (repo-rate) by 25bps setting the benchmark interest rate to 3.75% from 3.5%.
Market consensus was for the repo rate to remained unchanged (3.5%) hence this hike surprised vs the consensus. Inflationary pressures were of concern to the Central Bank which chose to act now rather than wait to contain a possible runaway inflation. In comparison to key global Central Banks such as the US Federal Reserve, the SARB Monetary Policy Committee saw inflation as persistent rather than transitory. Making note of increasing global energy prices which have been felt through local hikes in fuel prices to record highs with LRP95 currently retailing at R19.54 in Gauteng province.
Governor Kganyago further noted the analysis of Producers indicating possible price hikes in line with the up tick in inflation. This further confirmed the decision taken by the MPC to hike interest rates now rather than postponing to the next meeting. Speaking in a hawkish tone, the Governor gave direction of the interest rate path with possible rate hikes of 25bps in each quarter of 2022, 2023 and 2024. This repo rate projection is based on the policy guide of the Quarterly Projection Model (QPM) which the Governor noted is a “broad policy guide” which changes from meeting to meeting.
The Governor noted economic recovery was highly correlated with the rate at which the population is being vaccinated against covid-19. Noting how global economies that have resumed to operate at a healthy and sustainable pace where those that had vaccinated a significant percentage of their population early. This allowed economic activities to open up. The ZAR sold off on the announcement trading to new highs for the year against the US Dollar (USD),ZAR traded to as much as R15.76 on the announcement. This reflected the markets’ reaction to the announcement as an unanticipated move by the Central Bank. Currently trading toppish at 15.78, the ZAR is pushing to new highs for the year.
Disclaimer: the publication of analysis is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience or current financial situation. Analysis is not prepared in accordance with legal requirements promoting independent investment research and Exness is not subject to any prohibition on dealing before the release of analysis. Readers should consider the possibility that they might incur losses. Exness is not liable for any losses incurred due to the use of analysis.