Inflation pressure as repo rate up

IN WHAT most analysts considered would be a very close call the Reserve Bank’s monetary policy committee (MPC) yesterday raised the repo interest rate by 25 basis points to 6% following its three-day meeting.

The MPC noted concern over the inflation outlook towards the end of 2015 and into 2016‚ and a weak rand.

The repo rate was last raised by 25 basis points in July 2014 and has remained the same since.

Many economists expected interest rates to rise‚ as they forecast inflation to be at the upper end of the 3% to 6% target band by the end of the year and into 2016.

There is the possibility the US will raise interest rates before the end of 2015‚ which would likely prompt a further rise in rates in other countries‚ including SA.

Senior economist at Absa Jacques du Toit said the SARB remained concerned about the outlook for economic growth constrained by severe electricity shortages‚ low levels of consumer and business confidence‚ inflationary pressures and possible rising interest rates in the US.

Economist at Economists.co.za Mike Schussler said the rate increase had been expected and there would now be a period of higher interest rates despite lower commodity prices.

Chairman of property company, Seeff‚ Samuel Seeff‚ expressed disappointment, saying the increase was “out of step with the economy and bad news for consumers‚ home owners and buyers”.

For most households‚ their home loan was their biggest monthly expense and the rate hike would further dent the pockets of mortgage loan holders‚ many of whom were already struggling to balance household budgets.

The latest FNB Property Barometer shows household debt-to-disposable income levels are now at about 78.4%‚ down from 83% in early 2009‚ while credit growth remains muted, just above the 3% growth mark year-on-year.

On top of electricity hikes‚ transport cost increases‚ higher personal income tax for top earners and a 20%-40% hike in the transfer duty at the R2.25-millionend of the housing market‚ home loans will now be more costly.

A home owner with a housing bond of R995 000 and a current monthly repayment of R9 113 would see the repayment increase to R9 275 and would need to find an extra R162 out of an already embattled household budget. — BDlive