SA Reserve Bank sees need to raise interest rates further

South Africa central bank believes it is necessary to keep raising borrowing costs even after raising interest rates faster than its model suggests.

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As reported by The South African sitethe monetary policy committee raised the benchmark repurchase rate by 0.75 percentage points on September 22.

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Bloomberg said that was faster than the bank’s quarterly projection model reported after its July meeting, when it showed two increases of 25 basis points each in the first quarter of next year, said Tuesday the Reserve Bank of South Africa in its semi-annual report. Monetary policy review.

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The Reserve Bank of South Africa reacted to the worst global inflationary shock in a generation faster than many of its peers and raised the policy rate by 275 basis points since November.

The model of interest is only a general policy guide

Governor Lesetja Kganyago repeatedly stated that the model is merely a general policy guide.

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Lower inflation and ultimately lower interest rates could be achieved by implementing structural reforms that boost productivity growth, the Reserve Bank said.

Reforms aimed at alleviating the energy crisis in South Africa could increase real private investment in the energy sector by up to 15% per year from 2023 to 2025 and increase economic growth by around 0.9 percentage points. percentage in the first year, the central bank said.

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“Investment in energy has the potential to attract other productive investments, thus creating a virtuous circle”, said the bank.

electric utility Eskom Holdingswhich produces almost all of South Africa’s electricity, cannot meet demand and has imposed a record 120 days of outages so far in 2022, according to calculations by Bloomberg.

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Load shedding, a local term for blackouts, is expected to shave 1 percentage point off economic growth this year.

The bank lowered its forecast for gross domestic product growth to 1.9% from 2% in September.

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Leslie M. Gill