Sarb hikes repo rate to 6,75%

“A more front-loaded and assertive monetary-policy stance has become more appropriate”, JF Ruhashyankiko, an economist at Goldman Sachs in London, said in a note to clients before today’s decision.

The bank will “act with resolve” if inflationary pressures from the weaker rand spread more broadly in the economy, Governor Lesetja Kganyago said in an interview with Bloomberg TV in Davos last week.

While the central bank’s mandate requires it to target inflation, it must also consider the impact monetary policy has on growth and unemployment, which stands at more than 25%.

“The domestic economic growth outlook remains weak, with further downward revisions to the Bank’s forecast”, said Kganyago.

For that reason alone, the decision to stay firm on inflation targeting was important.

“So what we’ve penciled in is a series of interest rate hikes that we expect will lead up to a cumulative of 100 basis points over the course of this year”.

“Since the previous MPC, the inflation outlook has deteriorated significantly, mainly due to exchange rate and food price developments…”

Ahead of the MPC meeting, debt experts warned that an increase would be devastating for consumers, especially those already burdened by a high level of indebtedness.

“Despite the saving from the oil price, the petrol price is set to increase by three to six cents”.

The bank’s decision comes hours after the country’s statistics office announced that the producer price inflation had risen to 4.8% year on year for December from 4.3% in November.

The Fed kept interest rates unchanged as expected and said the USA economy was still on track for moderate growth and a stronger labour market even with “gradual” rate increases.

“Firstly, given the volatility being experienced in financial markets, exchange rates, stocks and commodities, many analysts are seeing property – bricks and mortar – as a sound investment and rand hedge”.

Financing of the current account will remain hard in current economic situations Govenor Kganyago said.

Economic woes have piled up in recent months for South Africa, with the International Monetary Fund slashing its latest growth forecast by nearly half to 0.7 percent.