World Economy

S. Africa Hikes Interest Rate

S. Africa Hikes Interest RateS. Africa Hikes Interest Rate

The South African Reserve Bank’s monetary policy committee has hiked lending rates for the first time this year with the key repo rate being increased by 25 basis points to 6.0%.

This means the prime lending rate increases to 9.5%. Most economists had expected the decision which was announced by the governor of the central bank, Lesetja Kganyago, on Thursday, AllAfrica reported.

Noting that the South African economy remained weak and that the local currency had been volatile, he said: “The rand remains a significant risk factor to the inflation outlook...given the vulnerability of the rand and long bond yields to possible US interest rate increases as well as a deterioration in South Africa’s terms of trade.”

Kganyago said the hike was in anticipation of the commencement of a tightening cycle in the US which could present a significant risk to inflation arising from a weaker rand.

“Our approach is not because the US is moving therefore we have to move; our attitude is when the US moves what are the implication for the economic outlook for South Africa and we respond to that.”

In January, Kganyago left the repo rate unchanged at 5.75%. He said at the time that lower oil prices were playing a key role in the benign inflation environment with the rate remaining at the upper end of the central bank’s 3% to 6% target range.

Kganyago expressed pessimism over the country’s economic growth in June. Speaking at the Reserve Bank’s Monetary Policy Forum in Polokwane, he said the country needed more than luck to achieve the 2.1% projected growth for 2015.

He warned that the economy would remain vulnerable on the back of a weakness in the local currency and rising oil prices and also urged politicians and businesses to execute relevant policies meant to cushion the poor amid the current sluggish growth.