South African consumer finances took another hit today as the South African Reserve Bank’s (SARB) Monetary Policy Committee Meeting (MPC) hiked the repurchase rate by 50 basis points (BPS).
This was announced by SARB governor, Lesetja Kganyago on Thursday, taking the repo rate from 7.25% to 7.75%.
This now means the prime lending rate will increase from 10.75% to 11.25%.
Against this backdrop, the MPC decided to increase the repurchase rate by 50 basis points to 7.75% per year, with effect from the 31stof March 2023. Three members of the Committee preferred the announced increase. Two members preferred a 25 basis points increase. #MPCMARC2023 pic.twitter.com/LMAKRvH77a
— SA Reserve Bank (@SAReserveBank) March 30, 2023
The announcement made by the governor was unexpected as it was widely predicted by analysts and economists the bank would hike the rate by 25 basis points.
The central bank has been on an aggressive trend of hiking the rate in a bid to help curb inflation, which saw the previous eight meetings by the committee voting for an increase.
The Reserve Bank has now raised rates for the ninth time in a row, adding a total of 425 bps to the repo rate since it began tightening policy in November 2021 to tame inflation.
Inflation, however, is still higher than the bank’s target range, as the economy has been impacted heavily by the rolling power cuts imposed on the country by ailing state-owned power utility, Eskom.
The five-member Monetary Policy Committee (MPC) was split 3-2 in its decision, with 3 members preferring a 50 bps increase and 2 wanting a 25 bps rate increase.
February consumer inflation in South Africa edged up to 7.0% year on year from 6.9% in January, data showed last week, signalling that rolling power cuts nationwide may be fuelling price pressures.
The central bank targets inflation between 3% and 6%.
“As we enter the second quarter of 2023, sticky inflation, sluggish growth & now elevated financial stability risks mark the global economy. Despite somewhat better growth outcomes in the first months of the year, we see no material easing of difficult global economic conditions,” Kganyago said on Thursday.
Kganyago added: “With inflation and policy rates remaining higher for longer, and new weaknesses emerging in financial institutions, we expect global financial markets to remain volatile.”
Economists in September last year, when the prime lending rate was increased to 9%, said the increase spelt doom for consumers in the country.
That paints a gloomy picture as the rate now sits at 11%.
Hayley Parry, money coach and facilitator at 1Life’s Truth About Money, said: “It’s been a rough week to be South African and I’m afraid the hits keep coming. 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.
“If you haven’t yet, now is the time to really get your financial affairs in order. 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 cash flow as inflation pushes prices up across the board.”
Ahead of the governor’s announcement, Frank Blackmore, Lead Economist at KPMG, told Business Report consumers’ wallets should be prepared to take another hit.
Blackmore, along with many other analysts predicted a hike of 25bps, the bank’s decision today to raise the repo rate by 50 bps instead, has sent shock waves through the country.
Many with loans to repay are already finding it financially difficult, with costs increasing because of inflation, higher food prices and the see-sawing of fuel prices.
BUSINESS REPORT