Consumers will have no choice but to tighten their belts as the country was hit with another repo rate hike on Thursday. As the economy slips further into a downward spiral, Reserve Bank governor Lesetja Kganyago announced a repo rate increase of 50 basis points to 6.75%.
After revising the Monetary Policy Review at the end of 2015, the SA Reserve Bank made it transparent to the public that the monetary policy had been tightened gradually over the past two years, allowing for a hiking cycle aimed at preventing a sustained increase in inflation, consistent with the Bank’s primary mandate for price stability.
SARB said that by going against its mandate of maintaining a 4% interest rate, a hike in inflation will not hit consumers as hard if a swell in the interest rate resurfaces.
“By pre-empting acceleration in inflation, policy is also being set to minimise the possible growth costs of tightening,” according to a statement by the Reserve Bank.
However, economists believe this repo rate increase will still impact South Africans greatly. Consumers paying off debt should expect added inflation to their repayments.
“Those paying a lot of debt will be paying more in interest to creditors,” says Dr Azzar Jammine, the director and chief economist at Econometrix.
Consumers are set to have less buying power, reducing expenditure on commodity goods.
“With interest rates increasing the cost of living, people will spend more on expenses allowing them to spend less on everything else,” says Jammine.
The biggest contributor is the rise in prices of imports to South Africa due to the fall of the rand with emerging markets China and the U.S.
Consumers can also expect an increase in the price of petrol, electricity and food.
Jammine says that a recession is to hit South Africa due to rising interest rates in conjunction with a depreciating rand causing economic development to stagnant.
“We will be lucky to have any growth in consumer spending. We will be going into a recession due to a slowdown in the economy,” says Jammine.
The rand depreciated from R14 to R16 from 2015 to 2016. VOC