Hike rates

Rising interest rates in South Africa

RSA’s central bank has raised its benchmark interest rate by 275 basis points since November last year – Photo: D Busquets/Shutterstock.com

The South African Reserve Bank (SARB) maintained its warmongering attitude Monetary Policy stubbornly high fighting stance inflation despite the country’s economic growth, which is beginning to weaken.

Since the start of its tightening cycle in November 2021, South Africa central bank raised its repo rate by a total of 275 basis points (basis points), bringing the rate to 6.25% in September.

On the other hand, the country GDP growth continued to slow amid high interest rates and external economic headwinds.

Analysts and the South African Reserve Bank (SARB) have downgraded their outlook for economic growth in South Africa for this year and beyond. Will the downside risks to economic growth prompt the SARB to take a break from raising rates?

What is the South African Reserve Bank (SARB)?

The South African Reserve Bank (SARB) was established as the central bank of South Africa in 1921, making it the oldest such institution on the African continent.

The original mandate of the SARB was to restore and maintain order in the issue and circulation of the national currency, as well as to return the gold standard to its pre-World War I exchange rate.

The bank’s mandate underwent several changes, but it was not until 1990 that it accepted a formal mission statement. It mandated the bank to protect the internal and external value of the randthe national currency of South Africa.

In 2000, South Africa adopted an inflation-targeting monetary policy framework, with the aim of maintaining inflation rate in a band between 3% and 6%.

Between 1998 and 2022, the repo rate – the cost for banks to borrow reserves from the SARB for a week – was the bank’s main monetary policy tool. In 2022, the SARB modified its monetary policy implementation framework. The policy rate became the rate banks earn for depositing SARB-eligible funds overnight. The new frame is called a tiered floor system.

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History of interest rates in South Africa

From July 2020 to November 2021, the SARB maintained its policy rate at 3.50% to support the country’s economy during the Covid-19 pandemic. The central bank made four rate cuts in the first half of 2020, bringing the rate down from 5.25% in March to 3.50% in July 2020.

The SARB began its tightening cycle on November 18, 2021, bringing the key rate to 3.75%. At its two meetings in January and March, the bank took a less aggressive approach, meaning that interest rate hikes in South Africa were lower as the bank opted for 25 basis point hikes. basis each, which brought the rate to 4.25% in March 2022.

The annual consumer price index (CPI) in South Africa rose to 5.9% in December 2021 – the largest annual increase since March 2017, according to Statistics South Africa. The rate of price increases slow motion to 5.7% in February, but rising food and fuel prices have begun to put upward pressure on monthly CPI inflation.

The bank then began to accelerate its hikes, raising the interest rate by 50 basis points in May 2022 and raising the key rate to 4.75%, with the inflation rate remaining close to the upper target of 6%. fixed by the SARB. Soaring goods and war-induced energy prices in Ukraine have affected domestic prices.

At the two consecutive meetings of July and Septemberthe SARB raised the policy rate by 75 basis points each time, taking the rate to 6.25% in September as inflation hit 13-year highs.

The depreciation of the rand against the US dollar also put upward pressure on inflation.

The U.S. dollar strengthened against other currencies due to aggressive monetary tightening by the U.S. Federal Reserve (fed), with investors piling into the safe-haven currency.

As of October 18, the US dollar/South African rand currency pair (EUR/ZAR) was trading at 6:11 p.m., gaining 24% in one year due to the rise in the USD, according to data from the economic data provider TradeEconomy.


South Africa’s annual inflation in August fell to 7.6% from a 13-year high of 7.8% in July, helped by lower fuel prices in line with falling global crude oil prices . However, inflation remained above the SARB target.

High inflation rate until 2024

The SARB raised its forecast inflation rate to average 6.5% in 2022 and to remain above the midpoint of the 3% to 6% target range until 2022.

The bank amended headline inflation for 2023 at 5.3% in September against a previous forecast of 5.7%, as he expected lower fuel and food prices next year. Inflation is expected to fall to 4.6% in 2024.

Fitch Ratings expects South Africa’s headline inflation to remain above the SARB’s target range until the end of 2023. The global ratings firm expects headline inflation to reach in average 7.2% in 2022, before dropping to 5.6% in 2023 and 4.5% in 2024.

The firm wrote in its 9/11 outlook:

“The weak rand and still high shipping rates are keeping local prices for imported goods high. Core inflation also continued to rise, although it remains within the SARB’s target range.

The World Bank forecasts inflation in South Africa to average 6.8% in 2022, falling within the SARB range of 5.7% in 2023 and settling just above the midpoint of the range target in 2024.

World Bank October 2022 The pulse of Africa report read:

“Aggressive monetary policy, lower commodity prices and weak domestic demand will drive down inflation over the forecast horizon.”

High rates to slow economic growth

In Septemberthe SARB lowered its growth forecast for the country’s economy to 1.9% from the previous forecast of 2%. Flood in Kwa-Zulu Natal in April and higher load shedding contributed to a contraction in 0.7% in the second quarter.

The bank expected growth of 0.4% and 0.3% respectively in the third and fourth quarters. It predicted that the country’s sterling growth would rebound to 1.4% in 2023 and 1.7% in 2024. The country’s economy grew by 4.9% in 2021, according to the RSA. official statistics agency.

In the latest interest rate news from South Africa, the world Bank warned that high interest rates could limit the country’s growth prospects. He expects South Africa’s economic growth to slow to 1.4% in 2023 from an estimated 1.9% in 2022 and rebound to 1.8% in 2024.

“However, tight monetary policy aimed at maintaining parity with the South African rand and tackling rising inflation could dampen growth. The twin deficits recorded last year will persist into 2022,” the Bank wrote. world.

“This poor performance is insufficient for the country to address the socio-economic problems of high unemployment and growing inequality.”

South African interest rate outlook for 2022 and beyond

As South Africa’s inflation rate is expected to remain high, if it does not exceed the SARB target, will the bank raise its key rates again or take a break?

In its 9/11 Global Economic Outlook, Fitch revised its SARB interest rate forecast upward and expects further monetary policy tightening in 2023:

“The central bank is concerned that rising inflation expectations will translate into high wage settlements, which are currently exceeding the headline inflation rate. As such, the central bank is less focused on recent economic weakness.

The firm predicted that the interest rate in South Africa would reach 6.5% by the end of 2022, an upward revision from 5.75% in the June forecast. It projects interest rates in South Africa to rise to 7% in 2023, before dropping to 6.25% in 2024.

South Africa’s interest rate is expected to reach 6.50% by the end of the last quarter of 2022, according to Trade economy projections. The RSA interest rate is expected to be raised to 6.75% in 2023, before lowering the rate to 6% in 2024, the service added.

Economic forecasting service Focus Economy expects the SARB to raise the repo rate to 6.37% in 2022, rising to 6.63% in 2023.

The bottom line

TradeEconomy and Fitch suggested that SA interest rates would be raised through 2023 to curb rising inflation.

Remember that analysts’ predictions of South African interest rates can be wrong and have been inaccurate in the past.

You should always do your own research before trading, checking the latest news on the South African economy, as well as technical and fundamental analysis and a wide range of analyst commentary.

Note that past performance does not guarantee future returns. And never trade money you can’t afford to lose.


Are interest rates rising in South Africa?

Both TradingEconomics and Fitch Ratings expected the SARB to continue raising the country’s benchmark interest rate through 2023 to 6.75% to 7%, before lowering it to 60%- 6.25% in 2024.

Remember that analysts and algorithm-based forecasting websites can and do get their forecasts wrong. Always do your own due diligence before making investment decisions. And never invest or trade money you can’t afford to lose.

Which bank in South Africa has the best interest rates?

According Price comparator, SA Retail Bonds has the best interest rate on fixed deposits at the nominal rate of 11.25% and the effective rate of 11.57%. Access Bank Plc ranks second with 10.85% and 11.41% for nominal and effective rates respectively.

Why are interest rates rising in South Africa?

Interest rates in South Africa have risen to combat soaring inflation that has exceeded the target of the country’s central bank.

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