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S.Africa Central Bank Acts to Combat Inflation

FILE - A homeless man begs for alms at a busy intersection in Johannesburg, Wednesday, Feb. 24, 2021

The central bank of South Africa on Thursday increased its benchmark interest rate by three-quarters of a percentage point to 5.5%, citing concerns over high inflation and weak economic growth.

The South African Reserve Bank "decided to increase the repurchase rate [an economic metric to control inflation] by 75 basis points to 5.50% per year," with effect from Friday, governor Lesetja Kganyago said during a televised media briefing.

"We hear the cries of South Africans that inflation is eroding their income, their salaries and their wages," Kganyago added.

The rate lift was higher than market analysts' forecasts of an increase of 50 basis points.

Central banks across the globe have hiked interest rates due to inflation, risking the prospect of recession as higher borrowing costs hurt businesses and consumers.

But on Wednesday the country's statistics agency, StatsSA, said annual consumer inflation had jumped to 7.4% in June — the highest reading since 2009 — driven by rising prices for food and transport.

Kganyago said the rate increase aimed to help bring inflation back down to the bank's target band of 3 to 6%.

He said the South African economy is now expected to grow by 2% this year, an upwards revision from the May forecast of 1.7%. That is still a drop from the 4.9% growth South Africa registered in 2021.

Inflation has soared to the highest level in decades in many countries, triggered by the war in Ukraine and the easing of COVID-19 restrictions.