PRETORIA – The South African Reserve Bank on Thursday raised the repo rate by 25 basis points to 7.25%, pushing the prime lending rate to 10.75% in response to mounting global supply shocks and renewed fuel price pressures.

The decision, announced by Reserve Bank governor Lesetja Kganyago, was unanimous and takes effect from 25 September. It marks the second rate increase in five months, reversing much of the relief gained over the past year.

“A few months back, it seemed that the fuel-price shock might be unwinding, but now it has intensified,” Kganyago said. “We are also seeing global rates moving higher. We have taken a measured approach to rate setting, in conditions of high uncertainty, but we remain focused on our price-stability mandate.”

Global turmoil drives decision

Kganyago cited escalating geopolitical conflicts as major drivers of the decision. Reduced oil flows through the Strait of Hormuz, interrupted Saudi Arabian exports due to fighting in Yemen, and ongoing destruction of refinery capacity in the Russia-Ukraine war have created what Kganyago described as “a large, negative and persistent global supply shock.”

The move comes as major central banks including the European Central Bank, the Bank of Japan and the US Federal Reserve tighten monetary policy. The Federal Reserve hiked rates last week for the first time in three years.

South Africa’s economy contracted 0.2% in the second quarter, confirming downside risks the bank had warned about in its previous meeting. The bank still expects a rebound in the second half of the year, with annual growth projected at 1.2%.

Petrol prices are rising again after moderating between June and August, with an average under-recovery of R2.83 per litre currently. The bank expects headline inflation to exceed 5% later this year and into early 2027, before slowing as fuel shocks recede. Inflation is projected to return to around 3% towards the end of 2027.

Property sector warns of pain

Samuel Seeff, chairman of the Seeff Property Group, criticized the decision as “another blow to consumers and the struggling economy.”

“We had hoped that the bank would look past short-term spikes and focus on protecting long-term economic stability,” Seeff said. “The current inflationary spike is driven by temporary factors such as oil prices rather than runaway domestic demand.”

He warned the rate hike “unnecessarily punishes already overburdened consumers” and will dampen property market activity. National transaction volumes remain about 16% below pre-pandemic levels.

Monthly bond repayments will increase by amounts ranging from R126 on a R750 000 bond to R842 on a R5 million bond, based on a 20-year repayment period at the prime rate.

Debt counsellors warn of breaking point

Neil Roets, CEO of Debt Rescue, said the increase comes at a particularly difficult time for households already battling to afford basic essentials.

“In the face of the expected October petrol and diesel price increases, driven by renewed global energy market instability and disruptions to oil supply, which will impact transport, distribution and food prices, worsening inflationary pressures – the accumulated impact will place already financially stretched South African households under even greater pressure,” Roets said.

South African households are already spending over 60% of their income on unsecured debt repayments, according to Reserve Bank data. The latest Eighty20 Credit Stress Report reveals that 41.8% of credit-active South Africans are in default on at least one loan, while outstanding consumer debt climbed to R2.7 trillion.

Roets warned that higher borrowing costs will also flow through to small businesses. Small, medium and micro enterprises account for approximately 34% of South Africa’s GDP and employ 60% of the workforce, according to the South African Revenue Service.

Outlook remains uncertain

The bank’s Quarterly Projection Model shows the policy rate broadly stable through the remainder of this year, with cuts later in the forecast as inflation falls to 3%.

Kganyago emphasized that decisions will continue to be taken on a meeting-by-meeting basis, with careful attention to data and the balance of risks.

“Because of the adverse global environment, domestic reforms are our best growth option,” he said. “As the Monetary Policy Committee, our primary role is to protect the value of the currency, by getting inflation back to 3% over time. We will act as needed to achieve this goal.”

Despite acknowledging favourable developments in food and core goods inflation, and a resilient rand throughout the year, the bank sees upside risks to inflation overall.

Inflation expectations remain elevated at around 4% rather than the bank’s 3% target, according to the latest Bureau for Economic Research survey, though the survey was conducted before recent fuel price increases.

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