Consumers who are already straining are expected to get more bad news on Thursday afternoon. All indications are that the Reserve Bank’s monetary policy committee will increase the repo rate – the rate at which the Reserve Bank lends money to commercial banks – for the ninth consecutive time.
The expectation is that the Reserve Bank will increase the rate by at least 25 basis points. This will bring the repo rate to 7.5% and the prime lending rate to 11%.
The Reserve Bank is caught between a rock and a hard place and it is not impossible that an even bigger increase can be announced. However, the bank must also take into account the effects of yet another interest rate increase on an economy that is already on its knees.
Thys van Zyl, head of product development at Everest Wealth, believes that higher interest rates, which will hurt consumers even further, are not the answer. He says that in the first place it is not the answer to suppress inflation and instead the focus should be on problems such as load shedding to keep inflation under control.
“At this stage South Africa has bigger problems in the form of ongoing load shedding which has a tremendous impact on inflation, cost price inflation, transport costs and the general cost of living of consumers,” says Van Zyl.
“If we cannot reduce the effect of load shedding on inflation, we will not be able to bring down stubborn inflation – even if the interest rate is raised three or four more times. The interest rate has been raised so many times over the past 16 months and it is clear that it is not working to curb inflation.”
Van Zyl, like most other economists, believes that the rate will be increased by 25 basis points; this will mean that the interest rate has already been increased by 375 basis points since November 2021.
“The Reserve Bank will definitely have to start looking at other options than just applying interest rate increases. There will have to be proactive thinking about how to make it easier for consumers who are really chewing stones with the cost of living skyrocketing.”
For those with debt, today’s announcement may mean more sleepless nights and for many people it will become increasingly difficult to settle their debts. However, people with investments and money in the bank are positively affected by an interest rate increase.
Samuel Seeff, chairman of the Seeff property group, believes the Reserve Bank should limit any increase to the minimum – and even consider forgoing a further increase for the time being.
He also says the Eskom crisis, a further weakening of business confidence and the contraction of the economy by 1.3% in the last quarter of last year, means the economy needs all the help it can get.
He warns that buyers and home owners will have to adjust to the higher interest rate – and that this will have a ripple effect on the rest of their budget.
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