Last week proved just how rough it has been to be South African, with hits that keep on coming.
The Monetary Policy Committee (MPC) announced that interest rates have been hiked by an unprecedented second consecutive 75 basis-point increase.
The impact on consumers is that the cost of servicing their debt is going to go up, and this is going to hit cash-strapped consumers hard.
ALSO READ: More pain for South Africans as repo rate returns to pre-Covid levels
Frank Blackmore, lead economist at KPMG, said this was an expected increase, however.
“As was expected by the market, the Monetary Policy Committee (MPC) the repo rate is to increase by 75bps from the current 5.5% to 6.25%. This would result in the prime interest rate increasing to 9.75% from the current 9%.
“The primary reason provided for the increase is that inflation, recorded at 7.6% in August 2022, remains well above the South African Reserve Banks target band of 3% to 6% and with the depreciation of the rand it is unlikely that inflation, especially of imported goods such as fuel, will fall by much any time soon. Besides for fuel, inflation is still being driven by food and energy more broadly,” Blackmore explained.
Debit order dread
South Africans have been bracing themselves for the higher amounts of cash they are about to see go off their debits today and later this month.
For example, the repayment on a R1 million home loan will be R488 more next month (increasing from R8 997 to R 9 485 based on prime).
This is R1 276 more per month than before the MPC started hiking rates in November last year.
“If you haven’t yet, now is the time to really get your financial affairs in order,” Hayley Parry, money coach and facilitator at 1Life’s Truth About Money advised.
“In this kind of environment, it becomes critical that we manage the money we do have, better. This may mean taking a financial health day to get on top of your budget, cut out unnecessary expenditure, audit your debit orders and get your finances fighting fit.
“This means ensuring you have an emergency fund in place, you’re paying off as much debt as possible, and taking proactive steps to manage your cashflow as inflation pushes prices up across the board.”
NOW READ: Reserve Bank left with little choice but to increase repo rate again
Repo rate hike in line with market expectations
Tertia Jacobs, treasury economist at Investec, said the repo rate hike was actually in line with market expectations.
The accommodation provided during Covid-19, 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%.
She said the decision was hawkish in as much as two of the MPC members were in favour of a 100bps rate hike, which came as a surprise.
The inflation forecast for 2023, interestingly, was revised down with both headline and core forecasts revised from 5.7% (P: 5.7%) and 5.4% (P5.6%).
However, the balance of risks to the forecast remains to the upside. And this probably contributed to the hawkishness in view of a high level of uncertainty as to the persistence of higher inflation in the future.
Added to this is that many international Central Banks are normalising monetary policy at a faster pace, with the Fed setting the tone, dealing more aggressively with inflation.
