South Africa’s main repo rate hike leaves uncertainty over economic growth

The South African Reserve Bank (SARB) hiked the main repo rate by 25 basis points on Thursday, causing it to fall from a record low of 3.75%. In addition, the Central Bank increased the consumer price index to 4.5% from 4.4% in the year 2021 and from 4.2% to 4.3% for the year 2022.

Head of Macro and Fixed Income Research at Absa, Jeff Gable said that the hike in main repo has arrived earlier than what most of the economists were expecting. This draws the SARB’s concern over upside inflation risks. Moreover, the projection now remains somewhere around the center point of the target of SARB.

He further said that the “We know that in South Africa we have tens of millions of vulnerable South Africans not really in a position to be able to protect themselves from inflation, and so [we have] a Reserve Bank here that has needed to be talking tough about inflation throughout the cycle,”

After years of stagnant growth, South Africa has been battling for the implementation of fundamental economic reforms. The sectors that still remain on the table of discussion are basic to a society such as an infrastructure, education, privatization of state-owned enterprises and public sector wages.

But the projects have been consistently halted by the intervention within the ruling party. Moreover, with a growth rate of 1.75% to 2% over the medium term, South Africa will be unable to bring meaningful change in its economy and fight social challenges.

Data source: CNBC