Reserve bank increases lending rates

South African Reserve Bank Governor Lesetja Kganyago speaks at IMFC press conference. [Photo: Reuters]

PRETORIA- South Africa’s central bank increased its benchmark lending rate by 25 basis points to 6.75 percent on Thursday in a close decision, saying the longer term inflation outlook remained elevated and that it could not risk waiting until later to act.

In a poll taken by Reuters last week, 16 of 26 economists said the South African Reserve Bank (SARB) would keep its repo rate at 6.50 percent while the rest opted for a 25 basis-point hike.

Three of the six Monetary Policy Committee members wanted a 25 basis points increase while the other three called for no change, Governor Lesetja Kganyago told reporters in Pretoria.

“We then closed the room, debated vigorously until a decision was made. In the end, the decision was that we go with the 25 basis points hike,” Kganyago said.

“Delaying the adjustment could cause inflation expectations to become entrenched at higher levels and that contributes to second round effects that would require an even stronger monetary policy response,” Kganyago said.

The rand was buoyed by the decision, firming by more than 1.3 percent to the dollar, its strongest level since Aug 10. It later traded at 1.01 percent firmer at 13.7750.