Did the Reserve Bank hike rates too soon?
Analysts have questioned the move as inflation eases to below the midpoint of the target range and the economy remains tepid
As inflation continues to ease, analysts have questioned whether the first interest rate hike in two years was warranted. The Reserve Bank’s monetary policy committee (MPC) raised the repo rate by 25 basis points (bps) in November 2018 — a move that was hotly debated by the committee and resulted in a split vote. However, some economists argue that the hike was a necessity given the persistent risks to the inflation outlook and the Bank’s longer-term forecasts, which look at the next two years. The hike was a pre-emptive exercise in response to long-term risks of inflation, including tighter financial conditions such as interest rate hikes in the US, a weaker exchange rate, a high wage rate, oil prices and rising electricity and water tariffs. The move split analysts. While some welcomed the hike, others questioned the timing given the fragile state of the economy and the strain consumers were already feeling. Since then, inflation has continued to ease. It is now well below the mid...
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