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Interest rates were hiked by 25 basis points on Thursday, as the Reserve Bank slashed its expectations for growth this year.
Three members of the monetary policy committee voted in favour of the 25 basis point hike, while two wanted a 50 basis point increase. A Reuters survey among economists showed that most expected a 50 basis point hike.
The move brings the repo rate to 7.25%, and the prime rate to 10.75%. Economists polled by Bloomberg expect that rates may peak at 7.5% and that the first cuts could come as early as the fourth quarter of the year.
The SA Reserve Bank hiked rates by 75 basis points for three meetings in a row last year.
On a new home loan of R2 million at the prime rate, the latest increase hikes the monthly instalment by around R340. Since November 2021, monthly payments on a R2 million home loan are R4 800 more expensive due to a raft of rate hikes.
On Thursday, Governor of the SA Reserve Bank, Lesetja Kganyago, was gloomy about the outlook for the South Africa's economy.
The Reserve Bank now expects the economy to only grow by 0.3% this year, due in part to load shedding.
As recently as November, it expected growth of more than 1% in 2023. However, the bank now expects more than 200 days of load shedding this year, which it estimates will shave two percentage points off the growth rate.
Kganyago lamented that the rolling power cuts are not only hurting growth but also fuelling inflation.
Businesses and households must pay more to find power sources during load shedding. This is raising the cost of doing business, and the cost of living for all South Africans.
The bank also slashed growth expectations to 0.7% in 2024 (down from 1.4%) and by 1.0% in 2025 (down from 1.5%).
"While economic growth has been volatile for some time, prospects for growth appear even more uncertain than normal," Kganyago said.
He expects that investment will decline amid weaker confidence and lower expected growth, while declining commodity prices mean exports are also forecast to be less robust.
While the bank lowered its growth expectations, it kept its headline inflation for 2023 unchanged at 5.4% - still above its target of 4.5%. It only expects inflation to reach this goal at the end of 2024.
Kganyago warned that inflation remains a threat, but said that the bank now feels more confident that it will hit its inflation target.
In a press briefing on Thursday, Kganyago was animated in his response to reports that the ANC, at its recent national conference, agreed to change the mandate of the Reserve Bank to include job creation, alongside its current sole focus on fighting inflation. This will require a constitutional change.
"If the people of this country decided that constitution must be changed to have a different mandate than the one in the constitution, well I guess, that is what the people in the country would have decided and we would just follow."
But he warned that South Africa cannot have balanced and sustainable growth in an environment of price instability.
