South Africa’s central bank raised its benchmark interest rate by the biggest margin in more than six years and signalled even higher borrowing costs are ahead, escalating its response to global headwinds that have fueled inflation and capital outflows.
The 50-basis-point increase in the repurchase rate to 4.75% was the biggest since January 2016 and matched the median of 20 economists’ in a Bloomberg survey. Of the five members on the panel, four voted for the half-point increase and 1 preferred a 25 basis-point hike.
After the announcement, the rand extended its gains and traded 1.3% stronger at 15.8236 per dollar by 4:23 p.m. in Johannesburg.
The aggressive move comes as the US Federal Reserve and European Central Bank adopt increasingly hawkish stances that have reduced the appeal of South African assets for offshore investors, triggering capital outflows and currency weakness. The rand’s depreciation has threatened to add to inflation risks exacerbated by Russia’s war with Ukraine and pandemic-related supply-chain disruptions.