The South African Reserve Bank (SARB) shocked consumers on Thursday after it was announced that the repurchase rate (repo rate) would be hiked by 50 basis points.
The 50 BPS hike to the repo rate means that the repo rate will now increase to 8.25% and the prime lending rate to 11.75%. in the country.
The SARB governor, Lesetja Kganyago, made the announcement on Thursday.
This increase was the 10th consecutive increase since the start of 2022, with South Africans seeing the repo rate rise from 3.75% at the start of January 2022.
Frank Blackmore, Lead economist at KPMG, said, “The Monetary Policy Committee (MPC) of the SARB have unanimously decided to increase the repo rate by further 50 basis points at their May meeting. Even though globally and, to a certain degree locally, the pressure from food and fuel on inflation has eased somewhat, core inflation as well as service inflation remains elevated. In addition, the expectations around inflation or inflationary expectations remain unanchored to the target to 4.5% and are currently measured as 5.3% for this year.”
“The good news is that we should start seeing or continue to see further reductions in inflation for the rest of this year. However, the risks to that inflationary rate remain on the upside, including obviously increases in import prices, based on the depreciation of the currency, as well as further currency weakness can be expected. The current account is also going to be seen to grow as a result of a weakened exchange rate,” Blackmore said.
“The Reserve Bank sees the inflation only returning to the midpoint of the target band at 4.5% towards the second quarter of 2025 and therefore we can expect rates to remain higher for longer,” he further added.
Hayley Parry, Money Coach and Facilitator at 1Life’s Truth About Money, told Business Report, “Unfortunately for hard-pressed consumers, this means more pain for anyone who is repaying any kind of debt. For example, if you have got a R1 million home loan that you are paying off, before this interest rate hiking cycle started, you would have been paying R7 753 monthly, and you are now going to be paying R10 837 per month - that is R344 more than last month and R3 084 more than what you paid under two years ago.”
Tough time for consumers
The latest Household Affordability Index shows that year-on-year the average cost of the household food basket increased by R481.02 (10.6%) – from R4 542.93 in April 2022 to R5 023.95 in April 2023.
It is no secret that South Africa is in a cost-of-living crisis, with inflation soaring, see-sawing fuel prices and the economy being battered by the effects of the rolling blackouts imposed by the ailing state-owned power utility, Eskom.
Eskom also announced that the possibility of Stage 8 load shedding loomed large for South Africans this winter, as it battles to maintain its generation capacity to keep up with the demand for electricity.
Analysts have also warned that the country is heading into recession territory for the first quarter of 2023, after experiencing load shedding every day this year.
BUSINESS REPORT