South Africa hikes rates amid inflation risks from war in Ukraine

JOHANNESBURG – South Africa raised its main policy rate by 25 basis points to 4.25% on Thursday as expected, citing inflation risks from the war in Ukraine.

The South African Reserve Bank’s (SARB) decision was in line with a Reuters poll, but the five-member Monetary Policy Committee was split 3-2, with two members preferring a larger 50 basis point move.

It was the third straight increase after similar moves in January and November. The rand extended its gains after Governor Lesetja Kganyago announced the rise.

Kganyago said headline inflation had risen well above the midpoint of the SARB’s 3% to 6% inflation target range and was expected to break above that range in the second quarter.

“Global producer and food price inflation has continued to surprise higher in recent months and could do so again, particularly if the war in Ukraine persists into the growing season,” the SARB said in a statement. his latest political statement.

“Oil prices have risen sharply through 2021 and are again on a sharp rise since the start of the year, propelled higher also by war and economic sanctions,” the SARB said.

The bank now expects headline inflation this year to be 5.8% from 4.9% in January, with the forecast raised mainly due to rising food and fuel prices. It predicts economic growth of 2.0% in 2022, better than the 1.7% previously forecast due to higher commodity prices and stronger-than-expected growth in 2021.

Commodities like coal, iron ore, gold and platinum group metals are South Africa’s main exports. A rally in commodities last year supported an economic rebound from the COVID-19 pandemic.

(Reporting by Alexander Winning, Olivia Kumwenda-Mtambo and Promit Mukherjee Editing by James Macharia Chege)