EconoView – September 2022

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– Daniël Minnaar


The Monetary Policy Committee announced last week (22 September) that the repo rate (the rate at which the Reserve Bank lends money to commercial banks) would increase by 75 basis points to 6,25%. This increase brings the prime lending rate of commercial banks to 9,75%.

This is the sixth consecutive increase since the beginning of November 2021 when the repo rate stood at 3,5%. The repo rate of 3,5%, which applied between 24 July 2020 and 18 November 2021, was the lowest since 1973 when it stood at 3,15% for three months.

Since 2021, inflation in South Africa has increased sharply, which compelled the SA Reserve Bank to apply a contractionary monetary policy.

A contractionary monetary policy is regarded worldwide as the preferred policy to curb inflation. The aim of the policy is to reduce the money supply of a given economy by increasing interest rates and, so doing, suppress inflation.

Interest rate increases were therefore to be expected as the inflation rate started to increase.

A higher inflation rate can also result in a negative real interest rate – that is when the repo rate less the inflation rate is negative. Historically, the SA Reserve Bank has not been in favour of allowing the real interest rate to remain negative for too long (see below).

During Gill Marcus’s term as president of Reserve Bank, however, the real interest was often negative. Marcus’s term extended from 2009 to November 2014, after which the current president, Lesetja Kganyago, took over the reins. When we look at Kganyago’s term (follow the yellow line on the graph), it seems he was less inclined to allow this negative rate. If history repeats itself, the SA Reserve Bank will probably increase the repo rate further in November this year when the Monetary Policy Committee meets.

On the foreign investment front, there are also reasons why the Reserve Bank might announce a further interest rate increase this year. The Federal Reserve Board in the USA last week also increased its interest rate by 75 basis points. This increase could make investment in emerging markets such as South Africa less attractive.

If investors withdraw their money from the South African market due to the attractiveness of higher US interest rates, it may result in a weaker exchange rate. This, in turn, will lead to, among others, pressure on local fuel prices, which will then place further pressure on inflation in South Africa.

The Monetary Policy Committee’s task to determine interest rates is therefore not a simple one.

The high inflation rate has had a significant impact on the agricultural sector. Given the sharp increases in input costs recently, many producers have a greater need for production credit. According to Prof. Johan Willemse, an independent agricultural economist, the latest agricultural debt figure for June 2022 is approximately R200 billion. Thus, for every percentage point increase in the interest rate, the agricultural industry must cough up an extra R2 billion in interest.


The annual inflation rate, as measured by the consumer price index (CPI), slowed down in August from 7,8%, a 13-year high, to 7,6%. August, however, is still the 16th consecutive month in which the rate was higher than the median (4,5%) of the Reserve bank’s target range of between 3% and 6%.

The inflation rate was again driven largely by the categories (1) food and non-alcoholic beverages, (2) housing and utilities, and (3) transport.

The inflation rate for food and non-alcoholic beverages was 11,3% in August, contributing 1,9 percentage points to the overall rate of 7,6%.

The rate for food and non-alcoholic beverages for August was slightly lower in the Western Cape at 10,1%, compared to an annual rate of 11,6% at national level.

On a year-on-year basis, Western Cape consumers experience a lower inflation rate in all food categories compared to national consumers. Month on month, however, Western Cape consumers experience a higher inflation rate in the categories oils and fats (2,4%) and vegetables (2,7%) than national consumers.

The cost of the category housing and utilities increased by 4% and contributed 1 percentage point to overall annual inflation of 7,6%.

Furthermore, the category transport increased in price in August by 21,2% year on year, contributing 2,9 percentage points to the overall rate. In this category, fuel increased by 43,2% and public transport by 23,6% on a year-on-year basis. Although the category transport remains high, the rate at which the category increased has slowed down. In July, the cost of the category increased 25% year on year, contributing 3,4 percentage points to the overall rate.


The Central Energy Fund’s latest figures come as good news for motorists who use petrol, with an average over-recovery of R1,09 per litre 95-octane petrol for September. The figures for diesel, however, are less favourable, with an under-recovery of 8 cents per litre for diesel with a sulphur content of 0,05%, and 14 cents per litre for diesel with a sulphur content of 0,005%.