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South African Rate Hike Exceeds All Expectations

The SA Reserve Bank’s monetary policy committee hiked interest rates by 50 basis points to 7.75%. Economists were expecting an increase of 25 basis points. Three members of the monetary policy committee voted in favour of the 50 basis point hike, while two wanted a 25 basis point increase. Reserve Bank governor Lesetja Kganyago said that inflation pressures remain a risk and that load shedding is pushing up the cost of living. The bank hiked its forecast for headline inflation to 6%, from 5.4%.Apart from local inflation, the local monetary authorities must also keep track of US interest rates, which have seen aggressive hikes. The gap between US and South African interest rates can’t widen too much, otherwise foreign investors – who are on the hunt for solid interest rates – will shun rand-based assets.

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