The South African Reserve Bank (Sarb) has increased the repurchase rate (repo rate) for a third successive time by 25 basis points to 4.25 percent as rising global oil prices continue pushing inflation higher.
Sarb governor Lesetja Kganyago today said that three members of the Monetary Policy Committee (MPC) preferred the announced increase and two members preferred a 50 basis point rise in the repo rate.
Kganyago said global financial conditions were more volatile at present and with higher than expected inflation, had pushed major central banks to start the normalisation of global policy rates.
He said the risks to the inflation outlook were assessed to the upside, with global producer price and food price inflation threatening to surprise higher if the war in the Ukraine persists into the growing season.
“Oil prices increased strongly through 2021 and are up again sharply year to date, propelled higher also by the war and economic sanctions,” Kganyago said.
“Oil prices are revised up further for this year, and fuel price inflation is higher at 26.1 percent, up from 13.7 percent.
Kganyago said the average surveyed expectations of future inflation have increased to 5.1 percent for 2022, up from 4.8 percent forecast in January.
As a result, the bank revised upwards its forecast of headline inflation for this year to 5.8 percent from 4.9 percent previously, primarily due to the higher food and fuel prices
“In the near-term, headline inflation has increased well above the mid-point of the inflation target band, and is forecast to breach the target range in the second quarter,” Kganyago said.
“Headline inflation then returns close to the mid-point in the second quarter of 2023, taking into account the policy rate trajectory indicated by the Bank’s Quarterly Projection Model (QPM).
“Some risks to the inflation outlook, like food and fuel, have been realised, and other risks, such as currency volatility and capital flow reversals, have become more pronounced.”
Core inflation is forecast to increase to 4.2 percent in 2022, up from 3.8 percent, to 5.0 percent in 2023 from 4.4 percent, before easing somewhat to 4.7 percent in 2024 from 4.5 percent.
Seeff Property Group chairman Samuel Seeff said they were not expecting any dramatic impact on the housing market as pent-up demand has now been absorbed to taper volumes from the highs of 2021.
“Although we had hoped for a pause by the Bank to provide some reprieve for homeowners and buyers who are facing rising costs, we believe the market is now well aware that the rate is stepping up this year to counter inflation and to normalise it after the dramatic rate cuts in 2020,” Seef said.
BUSINESS REPORT