Repo rate up 75 basis points

JUMP: PRIME INTEREST NOW 9.75%

Fuelled by blackouts, pressure on rand – Debt Rescue.

The Reserve Bank increased the repo rate by 75 basis points for the second time, closer to prepandemic levels as expected, in line with the similar increase by the US Fed.

This means that the repo rate will now sit at 6.25% and the prime interest rate at 9.75%.

Consumers will now pay more for credit and consumers with, for example, a home loan of R1 million with a repayment term of 20 years (to zero future value), who are currently paying about R9 000 per month at prime, will now see their payments increase to R9 500.

Those with, for example, a monthly vehicle loan repayment for R500 000 paid back to R0 over a five-year term at prime (9%) and currently paying R10 380, will now pay R10 620 per month, said Jacobus Lacock of Fairtree.

Three of the five monetary policy committee (MPC) members voted for a 0.75% increase, while two members voted for a 1% increase, signalling that the MPC will remain vigilant in fighting inflation.

The MPC also made some downward revisions to its inflation and growth outlook and now expects inflation to average at 5.3% next year, from 5.7% at its previous meeting.

The MPC expects growth of 1.9% this year, from 2.0% at its previous meeting, and inflation is only expected to fall back into the 3-6% target range by the second quarter of next year.

“We believe that the South African Reserve Bank (Sarb) is on the right course to bring inflation expectations down to ensure that it does not spiral out of control. Globally, it is the lower-income households that will be most affected by inflation,” Lacock said.

Economic research group Oxford Economics Africa said the outlook for interest rates has not changed much and further policy tightening is expected during the coming meetings, as the Sarb aims to bring inflation expectations back to target.

“The South African economy has been fortunate not to experience a severe inflation shock when compared to other advanced economies.

“Global supply shocks have pushed headline inflation above the upper end of the target band this year. We look for moderate disinflation over the next few months, with base effects set to take effect in the second half of 2023, which will see the headline rate revert to the mid-point of the target range.”

Tertia Jacobs, treasury economist at Investec, said the accommodation provided during Covid, which saw the repo rate reduced from 6.25% to a record low of 3.50%, has now been fully reversed, with the policy rate back at 6.25%.

Neil Roets, chief executive of Debt Rescue, called the hike “shocking” and said it was fuelled by rolling blackouts and downward pressure on the value of the rand. –