In the second interest rate hike for the year, the South African Reserve Bank’s monetary policy committee (MPC) hiked the repo rate to 6,25%, governor Lesetja Kganyago announced on Thursday.
It was the last MPC meeting for the year and follows a 25 basis point increase in July.
The next MPC is in January, shortly after the US Federal Reserve’s decision in December.
This brings the prime lending rate to 9,75%.
Jacques Du Toit, senior economist at Absa, said the announcement came against the backdrop of expected inflationary pressures due to the lagged effect of the severe drought on food prices, a weakening rand exchange rate and the prospect of rising interest rates in the US before year-end and during next year.
Further hikes in lending rates are forecast for 2016, which will cause debt repayments to increase, contributing to additional financial strain on consumers. Banks will continue to monitor economic and consumer-related trends, possibly impacting their risk appetite and lending criteria.
The rand, which was trading at R14,15/$ shortly before the announcement, quickly weakened to R14,20/$, but by 3.29pm was trading back at R14,15/$. — Fin24