Economists have widely predicted that the South African Reserve Bank (SARB) will hike the interest rate once again on Thursday.
The SARB’s Monetary Policy Committee (MPC) will make their decision on the repurchase rate (repo rate), with economists saying that a further hike will put more financial pressure on consumers.
The central bank is expected to maintain its hawkish monetary policy stance a bit longer, in spite of consumer prices softening to a seventh-month low in December.
Economists had widely predicted an increase of 50 basis points from the MPC in January, however, with the surprise decrease in the CPI, some economists say that it could be slashed to 25 basis points.
Andra Nel, purpose manager at KFC’s Add Hope, told “Business Report”: “A rate hike makes it very hard for consumers to maintain some financial security during these times. The reality is that the poorest of the poor is going to be most affected. With the cost of most staple food items already so high, those responsible for putting a plate of food on the table for their families will be left with even less.”
Listen to Nel speak further on the pressures consumers will face following a repo rate hike below:
Frank Blackmore, lead economist at KPMG, said the reason for the MPC hiking the rate once again was because inflation, which was 7.2% in December, remained well above the midpoint of the 3–6% inflationary target that the Reserve Bank maintained.
Listen to Blackmore talking more about the MPC’s possible decision on the repo rate below:
Brina Biggs, a senior manager at 1Life, predicted that the Reserve Bank would hike the repo rate by 50 basis points.
Biggs said: “It is really going to have a negative effect on households, especially those who purchased new homes during the Covid-19 pandemic period when rates were low. They are seeing massive increases in their bond repayments alone, never mind tariff increases, medical aid increases and everything else.”
Listen to Biggs expound on the potential rate hike below:
Neo Ralefeta, of Investec Treasury Structuring, said the recent surprise drop in inflation was good news to South African businesses and consumers, as this put less pressure on the SARB to hike interest rates in a bid to contain high inflation.
“Looking forward to Thursday, we think that the Reserve Bank is going to give us on last interest hike of anything from 25 to 50 basis points,” he said.
Listen to Ralefeta share his predictions on the repo rate below:
Sanisha Packirisamy, an economist at Momentum Investments, told “Business Report”: “Although we had initially anticipated an interest rate increase of 50 basis points at this month’s Monetary Policy Committee meeting, the downward surprise in headline and underlying inflation, subdued services inflation and signs of easing global inflation point to a strengthened case for a small rate rise of 25 basis points at the upcoming meeting.”
She added: “We expect the current interest rate hiking cycle to peak at 7.5% by the end of the first quarter, given that real interest rates, based on forward-looking inflation, are already in positive territory.”
The repo rate in South Africa is currently 7% and a 50 basis point increase will take it to 7.5%.
The prime lending rate in the country sits at 10.5%. If the Reserve Bank hikes it by a further 50 basis points at its January meeting, it will rise to 11%.
If the MPC adopts a 25 basis point hike, the repo rate would rise to 7.25% from the current 7% and prime would rise to 10.75% from the current 10.5%.
The graphic below shows how much your home loan repayment would increase per month depending on the MPC’s decision on a rate hike:
Pressures on consumers
According to the Pietermaritzburg Economic Justice & Dignity (PMBEJD) Household Affordability Index for January 2023, the average cost of the household food basket is R4 917.42.
In December the food basket cost was calculated to be R4 853.18. This means that in just one month consumers are paying an additional R64.25 or 13% for basic foodstuffs.
If you compare it to January 2022, when consumers were paying R4 401.02, this translates to an increase of R516.40 or 11.7%.
BUSINESS REPORT