Repo rate increase spells doom for cash-strapped consumers

ECONOMISTS say the latest repo rate increase by the South African Reserve Bank (SARB) spells doom for consumers in the country.

SARB governor Lesetja Kganyago raised the benchmark rate by 75 basis points following the three-day meeting of the Monetary Policy Committee (MPC), taking the repo rate from 5.5% to 6.25%.

The latest hike means that the prime lending rate in South Africa will increase to 9.75% from 9%.

Hayley Parry, money coach and facilitator at 1Life’s Truth About Money initiative, said: “It’s been a rough week to be South African and I’m afraid the hits keep coming. The impact on consumers is that the cost of servicing their debt is going to go up and this is going to hit cash-strapped consumers hard.”

Parry added: “For example, the repayment on a R1m home loan will be R488 more next month (increasing from R8 997 to R9 485 based on prime) and this is R1 276 more per month than before the MPC started hiking rates in November last year. If you haven’t yet, now is the time to really get your financial affairs in order. In this kind of environment it becomes critical that we manage the money we do have better.

“This may mean taking a ‘financial health’ day to get on top of your budget, cut out unnecessary expenditure, audit your debit orders and get your finances fighting fit.

“This means ensuring that you have an emergency fund in place, you’re paying off as much debt as possible and taking proactive steps to manage your cash flow as inflation pushes prices up across the board.”

Frank Blackmore, the lead economist at KPMG, said: “As was expected by the market, the MPC announced this afternoon that the repo rate is to increase by 75bps from the current 5.5% to 6.25%. This would result in the prime interest rate increasing to 9.75% from the current 9%.

“Three members of the MPC voted for a 75bps increase, while two members of the MPC indicated their preference for a 100bps increase.

“The primary reason provided for the increase is that inflation, recorded at 7.6% in August, remains well above the South African Reserve Bank’s target band of 3% to 6% and, with the depreciation of the rand, it is unlikely that inflation, especially of imported goods such as fuel, will fall by much any time soon. Besides for fuel, inflation is still being driven by food and energy more broadly.”

EY Africa chief economist Angelika Goliger said although inflation had come off the boil slightly, it remained high.