28 January 2016

South Africa: SARB Hikes Interest Rate By 50bps

Photo: Nick Roux/Wikimedia
Brett Birkenstock of Overberg Asset Management said with the recent fall of the rand, inflation will rise even with the drop in the oil price (file photo).

South African Reserve Bank (Sarb) governor Lesetja Kganyago on Thursday announced a 50 basis-point increase in the repo rate to 6.75%, in line with the consensus.

This means the prime lending rate will now be 10.25%.

Lending rates have risen by a cumulative 175 basis points since late January 2014.

Kganyago said the Sarb's latest inflation forecast has deteriorated. Inflation is still expected to breach the upper end of the target and remain outside its limits for the entire focus area.

The deterioration in forecast is mainly due to the exchange rate assumption and expected higher labour costs, he said at the end of the Sarb's first monetary policy committee (MPC) meeting for the year.

The rand immediately firmed to R16.27 from R16.33 following the announcement, while Kganyago was speaking.

Jacques du Toit, senior economist at Absa, said the MPC's decision to increase the repo rate again after announcing a rate hike in November was taken against the background of factors such as the sharply weaker rand exchange rate since late last year, anticipated food price increases in the near term because of the impact of the severe drought and the possibility of above-inflation electricity tariff hikes this year.

Ahead of the MPC meeting debt experts warned that an increase would be devastating for consumers, especially those already burdened by a high level of indebtedness.

DebtBusters CEO Ian Wason said consumers need to prepare themselves and find other means to pay their monthly expenses as opposed to taking out loans. DebtBusters' latest Debtometer Report shows that its clients require 102% of their net income to service their debt before paying for any living expenses.

He said middle- and-upper income earners in particular should watch out for higher living expenses and factor these into their monthly household budgets.

Source: Fin24

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