As a result of ‘extensive load shedding and other logistical constraints’, the SA Reserve Bank has revised its forecast for GDP growth to only 0.3%, the bank’s Lesetja Kganyago said.
The interest rate hike of 25 basis points this week, taking the repo rate to 7.25% and the prime interest rate to 10.75%, is the eighth consecutive increase in the current upward rates cycle. It was, however, somewhat lower than widely held expectations of a 50 or even 75 basis points increase.
The South African Reserve Bank began with bigger rate hikes fairly early in the current cycle, effectively front-loading the tightening, and it is now in a position to taper as global and local inflationary pressures begin to fade.
Three members of the Monetary Policy Committee (MPC) preferred the 25 basis points increase, and two voted for 50 basis points.
Read more in Daily Maverick: “SA Reserve Bank announces eighth consecutive interest rate hike — of 25 basis points”
Frank Blackmore, lead economist at KPMG, said the increase made sense.
“We are already at high levels of interest rates. They could have been punitive with an increase of 50 basis points, but by choosing smaller increments, it buys the ability to do something to address inflation without harming the economy.”
Reserve Bank governor Lesetja Kganyago said that although the economy grew by a relatively strong 1.6% in the third quarter of 2022, the expansion was not broad-based.
“We forecast no growth in the fourth quarter. For the whole of last year, GDP growth of 2.5% is expected, up from 1.8%. For 2023, and as a result of extensive load shedding and other logistical constraints, the bank now forecasts GDP growth of only 0.3%.”
Calculating the cost of blackouts
Kganyago said expectations are for more than 200 days of blackouts in 2o23, which is expected to reduce growth by at least two percentage points compared with the previous estimate of 0.6 percentage points.
Over the medium term, the forecast takes into account continuing high levels of blackouts, and more modest household spending and investment growth than previously.
“The number of days of expected load shedding in 2023 has been increased to 250 days from 100 days. In 2024, the number of days was revised up to 150 days from 40 days. Load shedding of 100 days has been assumed for 2025,” said Kganyago.
“Estimates of the average stages of load shedding [are] multiplied by the number of days and then multiplied by the ...