Due to the inflationary pressures facing the South African economy, the Reserve Bank is taking a cautious approach. As a result, the monetary policy committee decided to raise the main policy rate to curb rising prices.

The South African Reserve Bank (SARB) raised its main policy rate by 50 basis points to 7.75% from 7.25% in November 2022. The rate hike, announced yesterday, aims to curb inflation.  

The Monetary Policy Committee (MPC) justified the decision by the inflationary pressures facing the South African economy.

"Electricity prices and other administered prices continue to present clear short and medium-term risks. [...] Local food price inflation is revised up again despite global food prices falling in dollar terms, in part due to the lagged impact of the weaker exchange rate," an official release informs.  

In 2022, fuel price inflation averaged 34.4 percent and is expected to be -0.6 percent in 2023 (down from -2.7 percent). Electricity prices are forecast to remain unchanged at 12.9 percent in 2023, 14.5 percent in 2024, and 10.9 percent in 2025, the SARB indicates. Despite the decline in world food prices, local food price inflation forecasts are again revised upward: 9.9% in 2023 compared to 7.3% initially.

The bank lowered its 2023 growth forecast to 0.2 percent, down from 0.3 percent, due to heavy load shedding and logistical constraints. However, the economy is expected to grow by 1.0 percent in 2024 (up 0.7 percent) and 1.1 percent in 2025.

The forecast for core inflation remains unchanged at 5.1 percent in 2023 (up from 5.2 percent) and 4.8 and 4.5 percent in 2024 and 2025.