Johannesburg — South Africa’s rolling power cuts are expected to wipe as much as 2 percentage points off economic growth this year, the central bank said on Thursday as it raised interest rates by just 25 basis points.
The increase to 7.25% (ZAREPO=ECI) was smaller than the 50-bp hike expected by the majority of economists polled by Reuters and followed three 75-bp hikes in a row as the bank tried to pull inflation back from a 13-year peak struck in the middle of 2022.
The South African Reserve Bank struck a gloomy tone on the country’s economic prospects, saying growth of just 0.3% was expected this year and 0.7% in 2024. That compares to November growth projections of 1.1% in 2023 and 1.4% next year.
The smaller hike this time suggests bank could be coming to the tail-end of a tightening cycle that started in November 2021, although Governor Lesetja Kganyago used a news conference to stress the bank “meant business” about lowering inflation.
Three members of the Monetary Policy Committee preferred the 25-bp increase, while two wanted a 50-bp increase, Kganyago said.
“While economic growth has been volatile for some time, prospects for growth appear even more uncertain than normal. A material reduction in load-shedding (power cuts) would significantly raise growth,” the governor added.
Kay Walsh, managing director at Nova Economics, a consulting firm commissioned by Eskom to calculate the economic cost of power cuts, has estimated 22 billion rand ($1.3 billion) of output was lost in 2022 because of the outages, which reached record levels last year.
The SARB now sees consumer inflation of 5.4% in 2023 and 4.8% in 2024, compared with November’s forecasts of 5.4% and 4.5% respectively. Inflation dipped to 7.2% in annual terms in December from 7.4% the previous month, above the bank’s 3%-6% target range.
Inflation is expected to sustainably fall to the midpoint of its target range by the fourth quarter of 2024, the bank said.
*Bhargav Acharya, Kopano Gumbi & Alexander Winning; Editing: James Macharia Chege, Olivia Kumwenda-Mtambo & Nick Macfie – Reuters
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