Reserve Bank governor Lesetja Kganyago says consumers will benefit in the long term from the bank’s tight policy decisions, as inflation is more dangerous than interest rate hikes.

The Bank’s monetary policy committee yesterday unanimously decided to hike the Repo Rate by 50 basis points, pushing interest rates up to 11.75%.

It brings the cumulative interest rate hiking in the current cycle to 475 basis points since late-2021.

Kganyago says stubborn inflation – currently eating away people’s incomes – and the impact of loadshedding, is hurting consumers more, and he expressed confidence that this additional interest rate hike would combat that.

Does it hurt? Yes in the short term, it would hurt. But we have to take the short term pain, in the interest of long term gain.

Consumer Price Inflation came in at 6.8% for April, lower than the 7.1% in March, but still far above the Reserve Bank’s desired mid-point of 4.5%.

He says headline inflation is forecast to remain above the upper end of the inflation target range until the third quarter of this year, and will only sustainably revert to the mid-point of the target range by the second quarter of 2025.

ALSO READ: Inflation eases to 11-month low

Kganyago says for 2023, the Bank’s forecast for GDP growth is slightly higher than in March, at 0.3%, with loadshedding really draining any potential out of the economy at this stage.

We estimate loadshedding alone to deduct 2 percentage points from growth this year.

GDP growth forecast for 2024 and 2025 is unchanged from the previous MPC meeting, at 1.0% and 1.1%, respectively.

A slowing world economy is also taking its toll on the South African economy.

The weak rand has also not been helping matters. The rand has weakened over the past year, with further sharp depreciation in recent weeks.

John Loos, Property Sector Strategist at FNB Commercial Property Finance, says the full impact of all the interest rate hiking will feed into the market during the course of 2023, slowing demand for commercial property financed by mortgage borrowing.

Loos says the direct impact of interest rate hikes on consumers’ disposable income, along with the impact of the higher inflation that caused the rate hiking, is a key negative for consumer spending and thus for retail property.

He says on the residential development side of the market, new building planning has already been declining and this latest rate hike will probably reinforce that declining trend.

The next statement of the Monetary Policy Committee will be released on 20 July 2023. It remains to be seen whether inflation would have cooled sufficiently enough to avoid yet another interest rate hike.