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Repo Rate Jumps Significantly

The SA Reserve Bank Monetary Policy Committee has decided to hike the Repo Rate by 75 basis points.

The Repo Rate now sits at 5.5% after a big increase in the rate was announced this month by the SARB MPC.

The Repo rate (the rate the banks borrow money from the SARB at) has slowly been increasing over time. The past 5 meetings of the SARB Monetary Policy Committee has resulted in increases of 25 or 50 basis points. This month’s decision to push the rate by more than expected (everyone was kind of expecting a 50 point increase) was partly in reaction to the 13 year high inflation rate of 7.4%. Consumers have been hit by soaring transport and energy prices as the war in Ukraine continues.

When inflation is high, and the SARB aim to curb that, they will bump up the repo rate.

As a result, consumers country-wide will have to pay more than ever towards their existing monthly debt obligations. That in theory adjusts people’s spending habits and consumption levels.

Investors too will hope to see higher returns on investments. Higher interest rates on savings and investments can draw overseas investors to put money into the local market.

Since just November last year, the rate has now increased 200 basis points.

The Decision Strengthened the Rand For a Bit

The Rand had been trading weaker and then jumped after the announcement as investors and traders see the potential for bigger returns on investment and efforts by the MPC to curb inflation.

Overall, however, the Rand has been weakening in the face of ongoing power issues, natural disasters and political challenges. Despite this many international ratings agencies have adopted a wait and see attitude by adjusting their negative outlooks to more neutral ones. Globally inflation is sitting around 9% (annually) so SA at around 7% is still doing a bit better than many other places.