BL Premium reports that on Thursday the SA Reserve Bank (SARB) surprised with the highest increase in borrowing costs in two decades, underlining governor Lesetja Kganyago’s determination to tame rampant inflation and also signalling an acceleration in the pace of interest rate hikes.

The Bank’s monetary policy committee (MPC) raised the repurchase (repo) rate by 75 basis points (bps) to 5.5% from 4.75%. Highlighting upside risks to inflation, which focused on food, fuel and wages, the Bank said it revised its forecast for headline inflation in 2022 significantly higher to 6.5%. The increase comes amid growing worries that SA could be thrown into stagflation, an unwelcome mixture of low economic growth and high inflation. Kganyago said the MPC’s decision was to preserve credibility and to avoid a situation where short shocks such as steeply rising fuel and food prices ended up changing long-term expectations from price setters such as unions, consumers and businesses. “We hear the cries of South Africans that inflation is eroding their income, their salaries and their wages. And we are determined as the Reserve Bank to protect the income of South Africans and the steps that we have taken so far to act against rising inflation demonstrates our determination to protect the incomes of South Africans,” he indicated. Stanlib chief economist Kevin Lings said without rate hikes, SA had a high risk of quickly developing a self-reinforcing upward spiral in inflation driven by wage demands.

• Read the full original of the report in the above regard by Thuletho Zwane at BusinessLive (subscriber access only)
• Read too, Interest rates increased by 75bps - biggest hike in almost 20 years, at Fin24

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