Responses to the rate hike

Following the interest rate hike announced yesterday, many have come out stating the negative impact that this could have on consumers. The interest rate was increased by 0.25% to 7%, while the prime lending rate is now 10.5%.

According to the Freedom Front Plus (FF+) the South African Reserve Bank (SARB) is making a mistake by increasing the interest rate, as this will lead to an increased slow down on economic growth.

The rate hike

Anton Alberts, the FF+ parliamentary spokesperson, stated that the factors leading to the rate hike are out of SARBS control. “These factors were correctly summed up by the Reserve Bank as being valid points, but an interest rate increase will now merely bring about less money being spent in the local economy while we actually need an injection of funds through more spending.”

“Given the country’s chaotic political environment there is also no certainty that an interest rate increase will bring more international investments. The Reserve Bank should rather focus on freeing up the economy to improve and ensure growth,” believed Alberts.

In order to achieve this, Alberts said that debt should be made cheaper, not more expensive as it will now be. Furthermore he noted that consumers should not be punished for factors which are beyond their control.

Sizwe Nxedlana, chief economist at FNB explained the reasoning behind the rate hike decision. “A combination of low commodity prices, government belt tightening which is likely to accelerate and low levels of business and consumer confidence are already constraining South Africa’s growth. Despite this, the SARB raised rates by 25 basis points.

“The repo rate is now 2 percentage points higher than the January 2014 level when the current hiking cycle began. The SARB is hiking in order to tame inflation which in our assessment is likely to peak above 7% in the fourth quarter of 2016. By raising rates the SARB will tame domestic spending growth even further keeping core inflation in check. Raising rates will also curb inflation through the impact that low growth in domestic demand has on imports and the current account which should stabilise the currency.”

Your debt will cost you more

First National Bank (FNB) has come out clarifying that its prime lending rate is now 10.5%, in line with the announcement made by SARB yesterday. This means that your debt will now cost more as the interest on your debt increases.

Ian Wason, CEO of DebtBusters, pointed out: “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.”