In Wealthwise Magazine – According to Reserve Bank Governor, Lesetja Kganyago, the repo rate would increase by a further 25 basis points from October, following a previous 25 basis point increase in June, as inflation continues to accelerate towards the upper limit of the central bank’s 3% to 6% target range. That leaves the repurchase rate at 6.25% and the prime lending rate at 9.75%, raising concern that highly indebted South African consumers will struggle to make ends meet given already exceptionally high debt levels.
The repo rate hike also means the interest rate at which commercial banks lend to consumers — the prime lending rate — increases from 9.50% to 9.75%. This will have an effect on the disposable incomes of consumers, especially as the festive season approaches.
Although the increase was expected because of the increasing strengthening of the US dollar in the past few weeks, economists warn consumers to slow down on their credit facilities. The governor said that the main reasons for the increase include worsening drought conditions, an increase in food prices and adjustments of electricity tariffs.
According to Wikus Olivier, Debt Management Expert at DebtSafe, the consumers will have to curb their reliance on credit. They rely too heavily on credit facilities, and some are even making use of unsecured payday loans to go through each month, putting them in even more debt every month.
“Although the rate hike was expected, the timing is bad,” says Olivier. “Retail outlets in the country are dependent on boost in sales over the festive season, and the announcement by SARB governor might cause sales to decrease in comparison to previous years.” Wikus discusses the impact on credit repayment…