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Be­ware of fur­ther in­ter­est rate hikes

Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN

THE HIGH LEVEL of house­hold in­debt­ed­ness con­tin­ues to be a source of vul­ner­a­bil­ity to South Africa’s fi­nan­cial sys­tem in the event of an ad­verse shock to the re­pay­ment ca­pac­ity of house­holds. That’s the word from the SA Re­serve Bank’s lat­est Fi­nan­cial Sta­bil­ity Re­port. The re­port doesn’t elab­o­rate, but the com­ment im­plies fur­ther in­ter­est rate in­creases could harm SA’s bank­ing sys­tem. When the rand crashed to close to around US$1/R11 there were fears the Bank would raise in­ter­est rates fur­ther to stem the rout.

The re­port says fi­nan­cial crises are of­ten ac­com­pa­nied by height­ened house­hold sec­tor vul­ner­a­bil­ity that spills over into the fi­nan­cial sys­tem. The up­turn in the in­ter­est rate cy­cle – plus ris­ing food and fuel prices – have put pres­sure on the fi­nances of the house­hold sec­tor. That in­creased strain is re­flected in house and car re­pos­ses­sions, the drop in the num­ber of ve­hi­cles sold and in­creas­ing in­sol­ven­cies.

Af­ter soar­ing to a peak of 78,2% in first quar­ter 2008, the ra­tio of house­hold debt to dis­pos­able in­come dropped to 76,7% in the sec­ond quar­ter.

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