South Africa's biggest business lobby has openly questioned the Reserve Bank's decision to raise interest rates, arguing the move is hard to justify with the economy barely growing and business sentiment fragile.
The South African Chamber of Commerce and Industry (Sacci) said the hike "can barely be justified given the overall performance" of the economy. The Monetary Policy Committee lifted the benchmark repo rate by 25 basis points to 7% on 28 May — the first increase in three years — to anchor inflation expectations as conflict in the Persian Gulf pushed up energy and food prices.
Temporary shock or lasting threat?
The Bank also raised its inflation forecast, now seeing price growth averaging 4.9% by the third quarter, up from 3.3% previously. Sacci is unconvinced, suggesting the fuel-driven jump may prove "temporary and of short duration" and noting there is "no evidence of demand-pull inflation".
Economists are less sceptical. Bloomberg's Africa economist Yvonne Mhango called the hike "no surprise", arguing higher oil prices forced policymakers to act pre-emptively as the oil shock spread beyond the pumps.
More hikes on the table
The Reserve Bank's own projection model points to at least one further quarter-point increase this year, though Governor Lesetja Kganyago has stressed it is only a guide and that decisions are taken "meeting by meeting". He has framed the May move as part of the drive to return inflation to the Bank's new 3% target.
There is a sliver of relief from abroad: a softer-than-expected US core inflation print has eased pressure on emerging-market bonds and the rand, giving South African debt a friendlier backdrop. But with Brent crude still elevated and local fuel costs sticky, the rate debate is far from settled.
Compiled by Business Bagel from reporting by BusinessTech and Bloomberg and BusinessTech.
