South Africa's central bank increased its benchmark lending rate for the first time in nearly three years, saying the risk of higher inflation in the longer-term remained elevated and that it could not risk waiting until later to take action.
The decision to raise rates by 25 basis points to 6.75 percent on Thursday was the closest in recent times, and analysts said it was likely to be a once-off. The bank last raised rates in the first quarter of 2016.
Governor Lesetja Kganyago told reporters the Monetary Policy Committee (MPC) was aiming to anchor inflation expectations near the midpoint of its 3 to 6 percent target range while fending off calls to ease rates to boost growth.
Consumer inflation ticked up to 5.1 percent in October from 4.9 percent previously, data showed on Wednesday.
Three of the six MPC members argued in favour of a 25 basis points raise while the other three called for no change, said Kganyago, who is seen as one of the MPC's more hawkish members.
"We debated vigorously until a decision was made. In the end, the decision was that we go with the 25 basis point hike," Kganyago said.
"Delaying the adjustment could cause inflation expectations to become entrenched at higher levels and that contributes to second-round effects that would require an even stronger monetary policy response," Kganyago said.
The rand was buoyed by the decision, firming by more than 1.3 percent to the dollar to its strongest level since Aug. 10. It later traded 1.22 percent firmer at 13.7450.
In a poll taken by Reuters last week, 16 of 26 economists said the South African Reserve Bank (SARB) would keep its repo rate at 6.50 percent, while the rest opted for a 25 basis point hike. "ONCE-OFF DECISION"
The central bank has faced calls from politicians to help growth in the recession-bound economy. It did not meaningfully change its growth forecasts since the September MPC meeting, predicting growth will rise to 1.9 percent in 2019 from 0.6 percent this year.
"Current challenges facing the economy are primarily structural and cannot be solved by monetary policy," Kganyago said.
The bank said it saw consumer inflation in Africa's most industrialised economy averaging 4.7 percent in 2018, rising to 5.5 percent in 2019 and 5.4 percent the year after.
It said inflation would continue to deviate from the mid-point of its 3 to 6 percent target range, peaking at around 5.6 percent in the third quarter of 2019.
Kganyago said the weaker exchange rate and the impact of higher oil prices were key risks to inflation.
The bank has also been under pressure to match rate hikes in other emerging markets like Turkey and Russia in response to policy tightening in the United States, which has triggered a massive sell-off in emerging currencies and bonds.
Elize Kruger, analyst at NKC African Economics saw the rate hike as "a once-off event and not the beginning of a hiking cycle. Interest rates will probably remain unchanged for a prolonged period."
- Reuters