Interest Rate Hike: Prediction and History of Interest Rate Hike in South Africa

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Interest Rate Hike

Determining whether to raise interest rates and hence control interest rates, or repo rates, is the responsibility of the South African Reserve Bank. Increased borrowing costs are necessary for the South African Reserve Bank to control sticky inflation.

The benchmark repo rate of the South African Reserve Bank was held at 8.25%, a 14-year high, at its September 2024 meeting. The Governor did point out that this does not mean the hike cycle is done. The next measures would depend on inflation, he added, adding that interest rates have peaked.

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Understanding Interest Rate South Africa

In South Africa, the Monetary Policy Committee (MPC) of the South African Reserve Bank sets interest rates. The repo rate is the official rate of interest. This rate, which is usually displayed on an end-of-period basis, is how much central banks lend to or discount for deposit money banks.

Since it’s the cost at which private entities, primarily private banks, can obtain money from the central bank, the interest rate, also known as the repo rate, sets the tone for all other interest rates in the economy. Then, these banks will charge their customers an interest rate on financial goods that are typically determined by the policy rate.

South Africa Interest Rate Hike

Current Interest Rate

At its September 2024 meeting, the South African Reserve Bank maintained its benchmark rate at 8.25 percent, which was adjusted for inflation. Inflation for 2024 is now expected to average 5.9%, according to the SARB’s updated inflation predictions, which were previously 6.0%.

May of 2024 saw a another 50 basis point hike in the repo rate, bringing it to 8.25% from 7.75%. The headline CPI is now expected by the experts to reach 5.2% in September and 5.7% in October, for an average of 5.6% in the fourth quarter of 2024.

In 2024, GDP growth is predicted to be 0.4%, up from 0.3% in the previous prediction. Nonetheless, the decision was not made unanimously, with officials citing concerns about the rand’s prolonged decline and the persistent pressure on inflation as the main reasons.

Estimated GDP growth in 2024 is 0.4%, up from 0.3% originally. But the main reasons for the decision, which was not made unanimously, were worries about the rand’s persistent devaluation and the continuous pressure on inflation.

Interest Rate Hike Prediction

According to a number of experts, the SARB will probably raise rates by an additional 25 basis points at the November MPC before starting rate reductions in the second quarter of 2024. Accordingly, the repo rate is expected to hit 8.5% before two cumulative cuts of 50 basis points each in 2024 and 2025.

The CPI is expected to be roughly 5.3% in 2024, while analysts have forecast that inflation will only reach 4.5% again in 2025. The headline inflation estimates for 2024 and 2024 were also lowered by the SARB to 6.0% and 5.0%, respectively. Thus, for H2 2024, average headline inflation is expected to be inside the SARB’s target range.

History of Interest Rate Hike in South Africa

Since November 2021, the MPC has increased the interest rate in the nation eleven times. The repo rate reached a 14-year high of 8.25% after it conducted a total of 475 basis point rises. The repo rate was 6.3%, which is considered to be the lowest since October 2021 despite being fairly high in and of itself.

The SARB interest rate was since 2013 has been provided below in the table.

The next monetary policy meeting of SARB is scheduled for November, 2024.

Final Words

Amidst rising inflation rates, policymakers are confronted with additional indications of vulnerability in South Africa’s ungrowing economy. Despite sticky inflation both locally and globally, the SARB’s initiatives have produced encouraging outcomes recently.

It is important to understand that interest rate increases in South Africa or any country are frequently employed to control excessive credit expansion, capital outflows, inflation, and currency depreciation. In contrast, a central bank may be attempting to increase economic activity through the depreciation of currency or expansion of credit by lowering interest rates.

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