South Africa’s Reserve bank raised its benchmark repo rate by half a percentage point on Thursday saying the outlook for inflation had deteriorated.
This means the repo rate, which is the rate at which the Sarb lends money to banks, will rise to 6.75%.
The rand’s 15 percent plunge against the dollar since the last policy meeting in November forced the Reserve Bank to take more aggressive action after limiting its rate increases last year to 25 basis point moves.
Previously, the committee expressed concerns about the growing risks to the inflation outlook, mainly due to exchange rate and food price risks
A number of economists had urged the bank to take the bold step and raise interest rates by 50 basis points saying it would help the rand in the long run.
“Previously, the committee expressed concerns about the growing risks to the inflation outlook, mainly due to exchange rate and food price risks,” Governor Lesetja Kganyago told a news conference after the bank’s Monetary Policy Committee held its first meeting of the year.
“These risks appear to be materialising and have contributed to the significant deterioration of the inflation forecast,“added Kganyago
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.