The Monetary Policy Committee (MPC) have decided to increase interest rates by 50 basis points. Reserve Bank governor, Tito Mboweni, made the announcement this afternoon. Some analysts had predicted a 100 basis point interest rate hike. The 50 basis point increase now means that the prime lending rate has gone up to 15.5% whilst the repo rate goes up to 12%.

Inflation continues to go up in South Africa largely due to the rising costs of food and energy. The world oil prices are rising almost every day and this plays a significant part in the local economy. Since the beginning of the year, the price of petrol has gone up by almost R2.50 a litre. One may say that the central banks high interest rate policy is working as car sales continue to drop as less people are able to purchase new vehicles and property prices are steadily dropping.

The outlook for inflation is not looking great with inflation set to peak to about 12% before coming down only in the middle of 2010. This all does not take into account how the electricity tariff increases will go. If electricity prices also go up then the rate of inflation will also go up.

As Mr. Mboweni left the stage of his announcement he said, “Thank you and Good luck.” I think we are going to need all the luck we can in South Africa right now!

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