THE Reserve Bank’s announcement of a 50 basis point increase in the repo interest rate is another blow to the economy and consumers.
Reserve Bank governor Lesetja Kganyago on Thursday cited concerns about rising inflation and the devaluation of the rand as reasons why the repo interest rate was raised to 6,75% from 6,25%.
The increase, together with an anticipated eight-percent rise in the price of electricity, “is going to have a devastating impact on consumers,” said Neil Roets, CEO of debt management company Debt Rescue.
Consumers will need to make the financial adjustments for the tough times ahead, said Re/Max of Southern Africa CEO Adrian Goslett.
“Future rate increases could be a tipping point for many consumers who will no longer be able to service their financial commitments,” he said.
“We should all welcome the bold step taken … while the hike is painful, the severe instability we have experienced in recent weeks had to be addressed as the effects of an unstable currency and rising prices will hurt all consumers,” said FNB CEO Jacques Celliers.
“There may be further rate hikes during the year,” he added.
The depreciation of the rand increases the price of all imported goods including the estimated three million tons of maize that will have to be imported, maize meal prices may increase by 50% this year.
Roets said the interest rate increase would particularly hurt those already deeply indebted — a recent World Bank survey shows South Africans to be the world’s biggest borrowers, with 10,26 million people with accounts that are three months in arrears.
Kay Geldenhuys, property finance processing manager for bond origination firm ooba, said further interest rate increases that may be on the card this year would cause a slowdown in the demand for property.
The interest rate hiking cycle started in January last year and cumulatively, interest rates have increased by 1,75 basis points since then.
It means that on a 20-year home loan of R1 million, the monthly instalment has risen by R1 138 per month since January 2014.
Thursday’s 50 basis point rate hike alone added another R331 to the monthly payment, said FNB household and property sector strategist John Loos.
He said the rise in interest rates would help to decrease consumer debt. The debt to disposal income ratio of South Africans at 78,3% was still too high, he said.
Loos expected the prime rate to possibly rise as high as 11% towards the end of 2016 or early next year, from 10,25% currently.