Interest rate hike anticipated

The Monetary Policy Committee (MPC) is set to announce interest rate changes today, with many expecting an increase. DebtBusters CEO Ian Wason noted: “Current trends are indicative of a further rate hike when the South African Reserve Bank (SARB) meets, which will take the repo rate up to and possibly beyond the 7% mark.”

According to First National Bank (FNB), any increase in interest rates, whether tomorrow or later in the year, will put more pressure on consumers.

Wason concurs, pointing out that low income earners earning less than R5, 000 per month will be in an even worse financial standing than they currently are. “Our figures show that it’s often the poor that are hardest hit by debt. Low income earners have 80%+ of their debt as unsecured, expensive debt. Our latest stats show that these consumers required 146% of their net income to pay their monthly debt repayments (before debt counselling).”

Who will be affected?

The short answer to this would be: everyone. Dawie Maree, head of information and marketing at FNB Business noted that in the agricultural sector, farmers will be hit hard by a rate hike as they are still recovering from the drought. In addition, there is to be an electricity tariff hike in April, and a tyre levy coming into effect in October. This in turn will have a knock-on effect for consumers.

“Furthermore, if the price of meat continues to increase, there will be a push back from consumers who will avoid eating out, directly affecting restaurants and retailers,” added Maree.

Yudhvir Seetharam, head of analytics at FNB Business, noted: “Apart from the direct impact on SMEs’ cash flow and ability to service debt, interest rate increases hamper consumer confidence, their ability to spend and save, which ultimately has a direct impact on the bottom line of small businesses.”

Seetharam added: “In an attempt to win over more customers, SMEs must avoid making costly pricing mistakes. For example, if products are priced too high, there is no doubt that consumers will look for an alternative. On the other hand, while lowering prices to attract customers may work in the short-term, it can backfire on the business in the long run, impacting on the business’ ability to maintain profitability.”

“The timing of this rate hike is extremely bad for low income earners for a number of reasons. Firstly, consider that the debt to income ratio among these consumers is already too high, leaving little or no money for living expenses. Secondly, review how much these consumers have already had to endure this year, two consecutive hikes in the repo rate on the back of Christmas spending and food inflation caused by the worst drought SA has seen in over a decade,” stated Wason.

He added: “Now, add the final blow, the knock on effect of increases in the petrol levy (1 April), Eskom’s 9.4% increase in electricity (1 April) and another repo rate increase. All which will result in further increases in the cost of food, transport and rental as stores, transport operators and landlords try to pass along the cost of their increased expenses onto consumers.”

“I would urge consumers that are struggling with debt to seek help from an accredited debt counsellor, like DebtBusters or Consumer Debt Help, to help to restructure their credit agreements and free up some money for living expenses,” suggested Wason.