The repo rate has increased by 75 basis points to 7%, reaching a high last seen before the COVID-19 pandemic.
Lesetja Kganyago, the governor of the South African Reserve Bank, announced on Thursday that the repo rate has increased to 7%, dealing a harsh blow to those who hold bonds or owe money.
According to Kganyago, a higher repo rate would help in containing inflation for the time being.
“In the second quarter of this year, inflation breached the upper end of the target range and is forecast to remain above it until the second quarter of 2023.”
He explained that central banks all over the world were doing same.
“Higher than expected inflation has pushed major central banks to accelerate the normalisation of policy rates. It has tightened global financial conditions and raised the risk profiles of economies needing foreign capital.”
With the war in Ukraine still going on, inflation risks are still on the upside. High fuel and electricity prices have been a major contributor to inflation.
The governor of the reserve bank said that since high inflation was expected to last for a while longer, it was necessary to raise the repo rate in order to combat this.
He further said that the inflation rate was rising and needed to be curbed.
He claimed that some factors continued to drive inflation. “Electricity and other administered prices continue to present clear medium-term risks. Given low public sector wage assumptions and high petrol and food price inflation, considerable risk is still attached to the forecast for average salaries.”