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UPDATE 3-S.African reserve bank lifts repo rate by 75 bps after inflation rise

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By Bhargav Acharya, Kopano Gumbi and Rachel Savage

JOHANNESBURG, Nov 24 (Reuters) – South Africa’s central bank raised interest rates by 75 basis points on Thursday, after last month’s inflation unexpectedly inched up, which the governor blamed in part on domestic factors.

The move to 7.00%, which was forecast by a majority of economists polled by Reuters, came after Wednesday data showed annual consumer inflation rose to 7.6% in October from 7.5% in September, a first rise after two consecutive declines.

South African Reserve Bank (SARB) governor Lesetja Kganyago described the inflation figure as a “surprise”.

“The key surprise for us had been the pace of food prices… food prices globally have gone down in dollar terms so it was very much an exchange rate story,” he told reporters.

“The tariffs that are demanded by the price-setters in the utilities whether it is rail or electricity, those are things that tell us as South Africans that we can’t keep blaming inflation that it is coming from somewhere else,” Kganyago said.

Three out of five Monetary Policy Committee (MPC) members backed a 75 basis point (bps) increase while two opted for a 50 bps hike, Kganyago told a news conference.

The central bank, which targets inflation between 3% and 6%, also raised its inflation forecast for 2022 and 2023 on Thursday to 6.7% and 5.4%, from 6.5% and 5.3% seen at its previous policy meeting in September.

It has now raised rates seven times in a row, lifting its repo rate by 350 bps since November 2021.

The MPC also cut its economic growth forecast for 2022 to 1.8%, from 1.9% previously. It forecast growth of 0.4% in the third quarter and 0.1% in the final quarter, which the governor said was due to “record load shedding”.

The central bank now sees the economy growing 1.1% in 2023, down from 1.4% previously, and said more frequent power cuts could slash 0.6 percentage points from next year’s growth.

It sees growth picking up to 1.4% in 2024, also less than the previous 1.7%, and further to 1.5% in 2025.

The MPC also sees a weaker rand than in September, forecasting it at 17.76 to the dollar in the fourth quarter of 2022 compared with 16.91 rand in the previous quarter.

“The weaker exchange rate compounds the upside risks to inflation,” FNB Chief Economist Mamello Matikinca-Ngwenya said in emailed comments. (Reporting by Bhargav Acharya, Rachel Savage and Kopano Gumbi; Additional reporting by Promit Mukherjee and Anait Miridzhanian; Editing by James Macharia Chege, Alex Richardson and Tomasz Janowski)

Read More: UPDATE 3-S.African reserve bank lifts repo rate by 75 bps after inflation rise

2022-11-24 13:21:20

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