South Africa's business lobby has come out swinging against the Reserve Bank, arguing that last month's surprise interest rate hike was the wrong call at the worst possible time for a fragile economy.
The South African Chamber of Commerce and Industry (Sacci) said in a statement on Thursday that the increase "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 — its first hike in three years — as conflict in the Persian Gulf pushed up energy and food prices and threatened to unsettle inflation expectations.
A temporary shock, or something stickier?
Sacci's core argument is that the inflation behind the decision may prove short-lived. "One could speculate that it may not have been necessary to increase interest rates given that the rise in fuel prices may be temporary and of short duration," the chamber said, adding that "there is no evidence of demand-pull inflation" driving the recent acceleration in prices.
The Reserve Bank sees it differently. Alongside the hike, it lifted its inflation forecast, now expecting price growth to average 4.9% in the third quarter, up sharply from a previous 3.3%. Governor Lesetja Kganyago has said the move was about steering inflation back towards the bank's 3% target, while stressing that future decisions will be taken "meeting by meeting".
Economists side with the bank
Not everyone shares Sacci's scepticism. "The hike was no surprise," said Bloomberg Africa economist Yvonne Mhango, arguing that "higher oil prices forced policymakers to act preemptively as signs emerged that the oil shock was spreading beyond fuel prices."
The debate lands at a delicate moment. South Africa's economy has grown by an average of less than 1% a year for more than a decade, and business confidence remains subdued — Sacci's own index stood at 124.1 in May, barely up from 123.6 in April and well below the 131.4 recorded at the start of the year. New vehicle sales and stronger export volumes offered some support, but a drop in overseas tourists and stubborn inflation weighed on the mood.
For borrowers, the bigger question is what happens next. The Reserve Bank's own projection model points to at least one more quarter-point increase this year, though Kganyago has cautioned that the model is "only a guide".
