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The bigger-than-expected repo rate hike announced by the South African Reserve Bank (SARB) last week will put even more pressure on those with home and car loans, immediately pushing up the cost of financing.
Delivering its second monetary policy statement of the year, the central bank hiked the repo rate by 50 basis points (bps) to 7.75 percent – pushing the prime lending rate of commercial banks to 11.25 percent.
This is the ninth hike since the SARB took on a combative fight to rein in stubbornly high inflation at the end of 2021; since then the repo rate has risen by a combined 425bps, from a Covid-era record low of 3.5 percent.
The knock-on effect of the cumulative increases has put pressure on household spending, as the cost of servicing debt becomes more burdensome.
On a 20-year R2 million bond (US$112,283.71), consumers will pay R20 985 (US$1,178.18) at the new prime rate of 11.25 percent, compared to R15 506 just before the SARB commenced its hiking cycle when the prime rate was 7 percent.
“Consumers are reaching the end of their tolerance levels,” Professor Andre Roux, an economist at Stellenbosch Business School, told Moneyweb following the SARB’s latest announcement.
“We know that many people have high personal debt burdens and the cost of servicing that debt has gone up. Add to the mix load shedding … and the inconvenience that is causing, and tolerance stress levels are reaching a [breaking] point,” he said.
“As things stand … we are on the verge of a recession. Food prices are rising rapidly, which affects everybody but poor consumers more so. Unemployment is also chronically high,” he added. – Bloomberg
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