Repo rate hike may bring ruin

‘DEVASTATION’ AHEAD: COMING WITH HIGHER GRAIN AND OIL PRICES, FOOD SECURITY AT RISK

Urgent govt action needed to prevent financial collapse of households – Debt Rescue.

The repo rate increase’s domino effect will bring financial ruin to the majority of South Africans, while almost than 20 million of them already go to bed hungry every day.

It could not have come at a worse time with the war in Ukraine unleashing the biggest commodity shock the world has seen since 1973 and one of the worst disruptions to wheat supplies since the first world war.

The monetary policy committee (MPC) of the South African Reserve Bank (Sarb) announced on Thursday that it increased the repo rate by 25 basis points and Neil Roets, CEO of Debt Rescue, said this increase was going to hit

South Africans very hard.

“Higher oil and grain prices directly push up prices of key goods, such as fuel and bread, and the compounded effect of these on food security may well pull the rug from under consumers’ feet.

“The domino effect it will have on the price of goods and services will cause many to look financial devastation in the eye.”

He warned that one of the most serious repercussions of interest rate hikes, which inevitably drive up the price of basic food, was hunger. In SA, almost 20 million people go to bed hungry every day and 30 million run out of money every month, leaving them food-vulnerable. Government must take urgent action now to avoid the financial collapse of households, Roets said.

He also said that as it gets harder to meet living costs, people relied more on credit cards, making their situation worse as credit came with steep interest rates.

Herman van Papendorp, head of investment research and asset allocation at Momentum Investments, pointed out that Sarb noted it saw household spending as the key contributor to economic activity given decent growth in disposable income, rising asset prices and increased credit demand. “Higher fuel prices could nevertheless erode purchasing power given the share of consumer spending on petroleum products and transport costs.”

Carmen Nel, economist and macrostrategist at Matrix Fund Managers, said what was surprising was that two of the five MPC members voted for a 50 basis points and that a pause was not discussed, suggesting a 50 basis point hike at one of the following meetings is a distinct possibility.