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(Bloomberg) -- South Africa’s central bank delivered another jumbo interest-rate increase, prolonging its most aggressive monetary policy tightening cycle in at least two decades as it tries to tame inflation.

The monetary policy committee raised the benchmark rate to 7% from 6.25%, Governor Lesetja Kganyago said Thursday. The move matched the median expectation of economists in two separate Bloomberg surveys.

Of the five-member panel, three voted for the three-quarter point increase and two preferred a 50-basis-point hike. The bank’s forecasting model suggests it has front-loaded its fight against inflation, with the key rate seen 6.83% at the end of 2025. The Reserve Bank has repeatedly referred to the so-called quarterly projection model as a broad policy guide. 

The vote split suggests the panel is reaching a “peak in hawkishness,” said Sanisha Packirisamy, an economist at Momentum Investments. 

South Africa’s rand and yields on government debt were little changed after the announcement.

The key rate is now at a level last seen more than five years ago when the MPC was trying to guide consumer-price growth back below the 6% ceiling of its target band. It now matches the panel’s so-called steady state repurchase rate, which was published for the first time Thursday. 

“We will still see increases in the repo rate going forward, but these will likely be at a slower pace,” said Angelika Goliger, chief economist at EY Africa. “I am expecting a couple more smaller rate rises, of 50bps and 25bps, at the first two meetings of 2023, and then hoping we will be at the top of the rate hike cycle -- although not expecting rates to come down anytime in 2023.”

The Reserve Bank prefers to anchor expectations close to the 4.5% midpoint of its inflation target range. Thursday’s move serves to “increase confidence of attaining the target sustainably over time,” Kganyago said.

Headline and core inflation, which excludes the prices of food, non-alcoholic drinks, fuel and electricity, quickened in October, prompting the central bank to raise average forecasts through 2023. “If anybody wanted a measure that inflation is becoming broad-based, that would be it,” Kganyago said referring to the acceleration in core inflation. 

The central bank now sees headline and core-price growth returning close to the target midpoint in 2024.

South Africa’s move comes after Federal Reserve officials flagged increased risks of overtightening and signaled they may cool the pace of US interest-rate increases to 50 basis points in December. While the Reserve Bank doesn’t match the Fed move-for-move, a slowdown in the pace of US hikes will ease pressure on South African policymakers to bolster the differential that makes local assets attractive to foreign investors. 

Even though other central banks have also shifted to signal less aggressive hikes, the Reserve Bank didn’t commit to an imminent change in strategy. The policy stance “remains supportive of credit demand in the near term, while raising rates to levels consistent with the current view of inflation and risks to it,” Kganyago said. 

‘Tame the Monster’

The central bank lowered its projection for South African gross domestic growth to 1.8% this year and 1.1% in 2023. The prediction for next year assumes state-owned power utility Eskom Holdings SOC Ltd. will heighten power outages, shaving 0.6 percentage points off output.   

Higher rates make it more expensive for consumers to borrow their way out of a cost-of-living crisis spurred by high food and fuel costs. Discount clothing, sports goods and homeware-retailer, Mr Price Group Ltd., on Thursday reported that earnings missed expectations in the first half, underlining a deterioration in buying power. 

Inflation and rising interest rates make it a “very challenging trading environment,” Chief Executive Officer Mark Blair said. 

Thursday’s move brings the cumulative rate increase to 350 basis points since November last year and will further weigh on household consumption spending that accounts for about two-thirds of gross domestic product.

While South Africans are now complaining about the rising cost of living, the central bank’s latest move will help to temper future price growth, Kganyago said. “Unless we tame the monster of inflation, we can’t have balanced and sustainable growth in this economy.” 

--With assistance from Monique Vanek, Rene Vollgraaff, S'thembile Cele, Colleen Goko, Janice Kew and John Bowker.

(Updates with economist comment in fourth, seventh paragraphs)