Interest rate now at 7%

The interest rate has been increased to 7% effective as of 18 March 2016, while the prime lending rate is now 10.5%. This was announced by Lesetja Kganyago governor of the South African Reserve Bank (SARB) earlier today. This is an increase 25 basis points (0.25%).

Kganyago explained: “The Committee remains concerned about the weak growth outlook amid negative business and consumer confidence. The growth challenges facing the economy are compounded by the deteriorating outlook for global growth. The committee assesses the risk to the growth outlook to be on the downside.

“Given the upside risks to the inflation forecast and the protracted period of the expected breach, the MPC decided that further tightening was required to complement the previous moves. Accordingly, the MPC decided to increase the repurchase rate by 25 basis points to 7% per annum, effective from 18 March 2016. Three members favoured a 25 basis point increase while three members preferred no change. Ultimately the committee decided on an increase.”

The reaction

While it was anticipated, the repo rate hike does not bode well for consumers. Ian Wason, CEO of DebtBusters, said: “This repo rate increase will blow everyone’s budgets – South Africans cannot absorb any more increases in their debt repayments.”

According to Wason, the timing of this rate hike is bad for consumers for a number for reasons. These include:

• The already high debt to income ratio affecting many South Africans,
• The price hikes already endured by consumers this year, including a previous rate hike high food inflation,
• The petrol levy increase which, as well as the 9.4% tariff increase by Eskom, both of which will take effect on 1 April, and
• The continually weakening Rand which has negatively affected the economy and is forcing prices higher.

Wason cautioned: “The knock on effect of this repo rate increase is that the cost of food, transport and rentals will climb even higher as stores, transport operators and landlords try to pass along the cost of their increased expenses onto consumers. Consumers can’t tighten their belts much more, without compromising their standard of living.”

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, agrees with Wason that consumers will need to tighten their belts. He noted: “Economists from banks around the country have warned that the rate is likely to increase by at least 2% during the course of the next two years. Considering the rising cost of utilities and food this will negatively impact the property market and affect consumer confidence.”