Anticipated Repo Rate Pain for South Africans
Repo Rate Challenges and Inflationary Pressures Mount for South Africans
As consumers hoped for a repo rate decline, emerging obstacles and the potential for higher inflation signal a different outcome.
Financial experts anticipate a 50 basis points increase in the repo rate as the South African Reserve Bank’s Monetary Policy Committee convenes on Thursday. Initially, some economists suggested a more modest 25 basis points rise. However, such prospects were dashed as the rand depreciated throughout the previous week, reaching a trading value of R19.24 on Monday.
Additionally, the economy faces the imminent risk of prolonged electricity outages, which the Bureau for Economic Research (BER) warns will have adverse effects on growth and inflation. The BER highlights the mounting costs businesses will incur due to increased reliance on diesel-powered generators and heightened wastage during extended power cuts. Leading retailers have already raised concerns about passing on these additional expenses to end consumers.
In essence, the power crisis is exacerbating stagflation, characterized by reduced growth and amplified inflation. The BER suggests that the recent depreciation of the rand can be partly attributed to concerns surrounding the electricity shortage.
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