ECONOMISTS are divided on exactly how badly the repo rate hikes will affect the average South African in debt, although a few are saying that yesterday’s hike is good news.
Yesterday afternoon the SA Reserve Bank announced it would increase the repo rate by 50 basis points. According to the bank’s governor, Lesetja Kganyago, the rate at which the institution lends money to banks will rise to 6.75%, while the prime lending rate will increase to 10.25 %.
According to economist Mike Schussler the hikes will mean at least an extra R46 a month for every R100 000 borrowed on a 20-year bond. He said the increase could have been worse – much larger increases had been seen in previous years. “Ultimately, however, this is not a good news story, as we could get two or three more (rate hikes) in the coming year.”
Schussler said that while consumers might not feel the current increase, the forthcoming increases, combined with other services rate hikes – such as food, water and electricity – could take a dire toll on the average consumer. But economist Neil Roets was harsher in his analysis, saying even the current repo rate hike would severely affect consumers.
“This makes a major difference on monthly payments … This increase will filter through to other services as well. Everything will be more expensive,” he said. Roets advised that consumers plan their budgets and tighten their belts for a very expensive year to come. “Don’t wait until it’s too late to start budgeting,” he said.
In an interview with East Coast Radio earlier in the week, Sasfin Banking and Financial Services Group economist and director David Shapiro said increasing interest rates was a difficult decision in the current global economy.
“If anything, you would think one should ease the interest rate in order to encourage or to ease the burden on the consumer or on householders. But in this case I think that the mandate of the central bank is to stabilise prices. To do so they try to embed inflation expectation. It’s going to be more pain for an economy that is already suffering quite significantly,” he said.