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The South African Reserve Bank (SARB) took the market by surprise with a 50-bps rate hike taking the repo rate to 7.75%. Consequently, the prime lending rate increased to 11,25%. This is the highest level since 2009. Many were unprepared for just how hawkish the SARB will be as market expectations were of a 25bps rate hike. The most recent rate hike is 150bps higher than the pre-pandemic level in January 2020.
The risks to inflation outlook in SA remain on the upside as indicated by the SARB. The price pressures are external (outside SA driven ) such as higher global agricultural commodity prices and increased energy prices emanating from a tighter global oil market as result of the Russia -Ukraine war. High domestic electricity prices are increasing costs across the agricultural and food value chain. The weak rand is offsetting any global food and oil market prices clawback.
