Consumers get slapped

Jingle Bells are sounding more like alarm bells for over-indebted South Africans as the SA Reserve Bank’s (Sarb) monetary policy committee (MPC) hiked interest rates by 25 basis points on Thursday.

SARB governor Lesetja Kganyago announced that the repo rate, the rate at which the SARB lends money to commercial banks, increased to 6.25%.

This takes the prime lending rate to 9.75%.

With the US dollar continuously strengthening over the rand in the last two weeks and the US Federal Reserve expected to raise its rates at their next meeting, economists had predicted that the Sarb would pre-empt the US move and hike rates by at least 25 basis points.

Kganyago said at a media briefing on Thursday since the previous MPC meeting, the inflation forecast has remained relatively unchanged but the risks to the forecast have increased.

“The key risks are a marked depreciation of the rand; worsening drought conditions and their likely impact on food prices; and the possibility of additional electricity tariff adjustments.

“At the same time the economy remains weak despite an improved performance in the manufacturing sector, but both the mining and agricultural sectors appear to have contracted further in the third quarter,” he said. DebtBusters CEO Ian Wason warned that consumers who continue to fund their lifestyles on credit are now on a slippery slope towards financial disaster.

“We are already seeing how the heavy reliance on credit is impacting consumers with clients requiring 106% of their net income to service their debt, at the time of applying for debt counselling,” said Wason.

Consumers that are accustomed to living off credit are now turning to more expensive unsecured ‘pay day’ type loans to keep their families afloat, said DebtBusters’ Wendy Monkley.

Bond originator ooba said the rates hike would negatively impact residential housing markets.

“This decision will unfortunately negatively impact many consumers who are already facing increasing financial strain through dealing with elevated levels of debt and the rising cost of living expenses,” said Kay Geldenhuys, ooba manager for property finance processing.

Seeff chair Samuel Seeff said while not unexpected, he reckons the interest hike was poorly timed.

“In view of the poor economic performance, a hold on the rate would have been a vital boost for the festive season, an important period for the retail sector. The MPC could then have hiked the rate at their next meeting at the end of January.”

He said this rate hike, the second for the year after a 25 basis point hike in July, is unlikely to do much to improve the value of the rand and is likely to further stem the economy.

The hike means that a homeowner with a 20-year home loan of around R1m will now see their monthly repayment increase from about R9 787 to R9 959.

Fin24