CHRIS GILMOUR: Unlikely that the Sarb’s 75 bps increase will be the last
But raising interest rates will not mitigate SA’s 7.4% inflation rate, as it is mainly caused by imported factors — not excessive demand
As expected, SA Reserve Bank (Sarb) governor Lesetja Kganyago and his team at the Monetary Policy Committee (MPC) delivered a 75 basis point (bps) increase in the repo rate last week, taking the rate to 5.5% and prime lending rate to 9%. This is largely in line with where the repo rate was before the start of the coronavirus pandemic, however, SA’s inflation rate is significantly higher than it was two years ago at 7.4% and thus it seems unlikely that this rate increase, as steep as it is, will be the last.
According to the governor, three members of the MPC voted for a 75 bps rise, one member voted for a 100 bps rise and one member voted for a 50 bps. Given that SA’s inflation is caused mainly by imported factors — fuel and food prices mainly — and not excessive demand, it is difficult to see the rationale for believing that raising interest rates will have the desired effect of choking off inflation. ..
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