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Reserve Bank shocks economists with 50 basis point hike in repo rate

Hannah Omarjee | homarjee@radioislam.co.za
31 March 2023 | 17:00 CAT
2 min read

Photo Credit: Careers Portal

Economists are still in shock after the South African Reserve Bank through the country a curveball and increased the repo rate by 50 basis points. Lesetja Kganyago, SARB governor, announced a hike in the repo rate on 30 March 2023, which saw an increase from 5.25% to 7.70%. The hike highlights more challenging times ahead for already struggling consumers.

Efficient Group Chief economist Dawie Roodt in conversation with Radio Islam International, said he did not expect the steep interest rate increase but agreed with the decision as the South African Reserve Bank has access to information that is not always available to economists. The SARB, he said, conducted their research using excellent economic models.

According to Roodt, inflation rates in South Africa are continually increasing, resulting in wage-earners losing their buying power, adding to the challenges of many South Africans. The Reserve Bank is attempting to end this cycle by increasing interest rates.

Roodt said,” Of course, increasing interest rates is a very blunt instrument. It is not necessarily the right; well, it certainly is not the right instrument. There are alternatives, but it’s the only instrument available to us after the ball has been dropped by many other institutions in South Africa.”

The Reserve Bank is forced to increase interest rates because the alternatives are difficult to implement politically.

Roodt believes while this decision will cause a lot of damage to the economy of the country, it is necessary as the Reserve Bank attempts to force slower economic growth to remove demand from the economy, to lower inflation, allowing the Reserve Bank to lay a better foundation for more robust economic growth.

According to Roodt,” It is much better to have high short-term interest rates for a short period of time than to have inflation for a long period of time.”

Roodt said it’s not all bad news; after the announcement, the rand appreciated, which is a good sign, indicating that the Reserve Bank made the right decision.

Listen to the full interview on Your World Today with host Annisa Essack here.

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