The South African Reserve Bank (SARB) has increased the repurchase (repo) rate at each Monetary Policy Committee (MPC) meeting since November of last year; our most recent move was 75 basis points, to 5.5%. We are raising rates in the context of higher inflation, with headline inflation currently at 7.8% − well above the 6% upper bound of our target range.
I hear many questions about why we are raising rates, seeing that inflation is driven primarily by supply shocks in the form of higher global food and oil prices, while demand pressures in the economy are limited. I hope to explain today how central bankers think about what tools they have at their disposal in these circumstances.