Avoid loans following 0.5% rate hike – economist

MBABANE – Economist Sanele Sibiya has advised consumers to avoid loans and other long-term financial commitments.

Sibiya, an Economics Lecturer at the University of Eswatini (UNESWA), was responding to the announcement by the Central Bank of Eswatini (CBE) effectively increasing the lending rate by 0.5 per cent on Monday.

Local banks immediately increased interest charged on loans as a consequence.

Sibiya said this, coupled with the increases in the prices of goods and services, was bound to plunge consumers into difficulty if they did not make sound financial decisions.

“Projections show that the rate of inflation will rise further during the year, which would mean higher prices for food items and other daily necessities like fuel. Add this to the increase in interest rates, then it is clear that we are headed for a difficult period,” he said. The economist advised those who had already made commitments with banks to adjust their spending in other areas so they could be able to cater to the unexpected increase in loan repayments.

“This is reality, not fiction. As we speak, inflation has been projected to increase by close to one per cent before December 2022. This will definitely affect prices and possibly force the Central Bank to have a re-look at the interest rate, which will definitely entail hardship for some, as they would find themselves with very little to spend on other amenities,” he said.

Prices

A rise in oil prices was mentioned as a major cause for inflation by the CBE. Sibiya explained that oil production and export in Russia had gone down significantly as a result of the war with Ukraine. He said the Organizasion of the Petroleum Exporting Countries (OPEC), the United States, and other oil producing countries had tried to increase production to compensate for lost Russian output, but the effect was minimal.

“There are other contributory factors like the lockdowns in major cities, because of Covid. China is a good example. Once the big ports are locked down, the transit of goods become difficult, which then leads to a short supply. This is usually met with increased prices as suppliers seek to balance up demand against available quantities,” he said.

As a consequence of current trends, the CBE revised its second quarter inflation forecasts from an initial 4.02 per cent to 4.28 per cent. The third and fourth quarters of 2022 were also revised upwards to 4.47 per cent and 4.54 per cent, respectively.

Sibiya said businesses, just like consumers, must also adjust their spending in anticipation of an increase in the cost of raw materials.