Delay in reforms dims India’s growth prospects

The inflation forecast for the first two quarters of next year has also been revised up by 0.1 percentage point to 6.9 percent and 6.1 percent respectively, with a return to within the target range by the third quarter of 2015.

“The persistence of forecast inflation at elevated levels and the continued upside risks to the outlook remain a concern to the MPC”, Kganyago said.

The latest increase in interest rates was the first since July past year.

Reserve Bank governor Graeme Wheeler yesterday delivered the 25 basis points cut to the official cash rate down to 3 per cent that the markets had expected and foreshadowed more to come.

The committee pointed to the rand exchange rate as a particular risk to its inflation forecast, saying it and other emerging market currencies were expected to be affected when the US Federal Reserve hiked rates later this year.

The pressures on the exchange rate have been exacerbated by the recent significant decline in commodity prices, which are likely to impede the favourable current account adjustment.

At the same time, banks will also raise their prime lending and variable mortgage rates by the same scale to 9,5%.

“I think that provides a degree of insurance”.

Ian Wason, CEO of debt counselling firm DebtBusters, said the rate hike will have the biggest impact on homeowners.

“The rand is going to come under strain next year, when you’ll see more of the moves coming from the US”, said Weimar, adding the rate rises would make already conservative South African consumers even more careful.

“Banks will continue to monitor economic and consumer-related trends in decisions regarding risk appetite and lending criteria, which will affect the accessibility and cost of credit”, says Du Toit.

“Caution is the message that South African consumers should take away ” try and repay the debt”.

Kganyago and his deputies have repeatedly warned that the central bank can’t keep delaying rate increases as Africa’s most industrialized economy struggles with anemic growth while a weaker rand and higher energy and food costs threaten to stoke prices.

The inflation data was better than expected after food prices rose at a slower pace of 4.3 percent in June from a year ago and gasoline costs fell 5 percent.