Reserve Bank Governor Tito Mboweni on Thursday announced a 50 basis point increase in the repo rate to 8%, in a move he described as ”moderately prudent”.
The 0,5% hike in interest rates was widely predicted by economic analysts, although there were also rumours that the Reserve Bank’s Monetary Policy Committee (MPC) would hike rates by 1% after the conclusion of its two-day meeting this month.
The rand strengthened ahead of the Reserve Bank’s interest rate announcement and an analyst reported that bonds were being sold off because of speculation of a 100 basis point increase.
Mboweni announced that based on current assumptions, the consumer price index excluding mortgages (CPIX) would exceed the 6% target in the first and second quarters of next year and decline slowly to within the bank’s targeted 3 to 6% inflation in 2008.
In June, CPIX was 4,8%, compared to 3,7% in April and 4,2% in May.
Mboweni said that food price inflation contributed to higher domestic inflation, as well as petrol price increases, steadily growing household consumption and high consumer confidence.
Despite the importance of food and energy price changes, he said that inflationary pressures were more ”broad-based,” pointing to production price inflation of 7,6% in June compared to 5,5% in April and 6,3% in May.
Predicting that the MPC would raise rates by 50 basis points, Iraj Abedian, CEO of the Pan African Advisory Services, said that it was important for the bank to show consistency and not over-trim, but create enough space for the growth momentum of the economy to continue.