On the 27th of January, the reserve bank announced a further 25 basis points increase in the REPO rate making it an effective 4% per annum. The implied policy rate path indicates gradual normalisation in the first quarter of 2022, and into 2023 and 2024, given the inflation forecast. As usual, the repo rate projection remains a broad policy guide, changing from meeting to meeting in response to new data and risks.
Given the expected trajectory for headline inflation and upside risks, the Committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates. However, economic, and financial conditions are expected to remain more volatile for the foreseeable future. In this uncertain environment, policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook.
Better anchored expectations of future inflation should keep interest rates lower for longer and can be realised by achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation, and keeping wage growth in line with productivity gains. Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy.
The “official rate” as gazetted by SARS is linked to the repurchase rate plus one per cent. The official rate is adjusted at the beginning of the month following the month during which the Reserve Bank changes the repurchase rate. Accordingly, the “official” rate of interest increases to 5% with effect from the 1st of February 2022.
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