These increases were prompted by the fact that the inflationary pressures, which were at first mainly confined to rising food and energy prices, became more broadly based and in the end not only influenced the prices of goods but also the prices of services which are not directly affected by exchange rate developments.
The increase in the repo rate was further based on factors such as rising inflation expectations, increasing nominal unit labour costs and high growth in money supply and bank credit extension. The Monetary Policy Committee concluded at its meeting in November 2002 that the level of interest rates was appropriate to avert an inflation spiral.