A marked deceleration in policy normalization by the South African Reserve Bank at the start of 2023
The South African Reserve Bank’s Monetary Policy Committee (MPC) met this week for its first 2023 meeting and announced its interest rate decision today. And in line with market expectations, the Reserve Bank once more hiked the repo rate but slowed the pace of increase to 25 basis points. This was following three consecutive 75 bps increases starting from July 2022. As such, the repo rate rose from 7% to 7.25% and the prime rate from 10.5% to 10.75%.
The Reserve Bank’s mandate of maintaining price stability was once again the main factor influencing this week’s policy decision to increase rates. South Africa’s inflation, despite its recent downward trend, is still above the Bank’s inflation target band (3% to 6%). In December 2022, inflation registered 7.2% y/y after recording 7.4% in November, making it the eighth consecutive month during which annual consumer inflation remained above 6%.
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