Mercado Released [27 July 2015]: SA: Interest Rate Hike

In a surprise move the South African Reserve Bank has hiked interest rates by 25 basis points to 6.0%. This was the first increase since July 2014. The Reserve Bank had maintained interest rates in order to assist the local economy which has battled with strikes and rolling black outs. Despite the fact that the economy has seen weaker levels of growth, the Reserve Bank chose to hike rates to keep the inflation rate within it 3-6% target band. Although inflation levels have remained within the band, higher electricity costs and a weaker rand threaten to push inflation out of the target level. Despite the lower-than-expected inflation levels that were experienced during June, the central bank still chose to hike the rate even though many economists felt that this would give the bank more breathing room. Consumers in SA will now have to pay more for credit, which in turn puts less money in the pockets of citizens, which has a direct effect on economic growth. South Africa is not the only nation who has hiked rates. A number of African countries have also raised rates, including the likes of Namibia, Kenya and Ghana. These countries have reacted to higher inflation levels which have stemmed from weaker currencies which have put commodities under pressure. Commodities usually make up the bulk of exports. South Africa and other Emerging Market nations will in the upcoming months most probably raise rates again in order to prevent money from moving out of the country as the US continues on its path to hike rates.

Week 31 2015