While analysts were initially uncertain about the impact of yesterday’s unexpected 50 basis point hike in the repo rate to 5.5 percent on the banking sector, there was no uncertainty with regard to the retail sector.

Shares in banks and retailers were down sharply within an hour of the announcement, even though one leading bank analyst said traditionally an increase in interest rates was positive for bank profits and consequently for bank shares.

“An increase usually filters through to increased margins for the banks, but in light of current economic conditions and the pressure on consumers, there may not be an improvement in profits this time.”

He added that although recent data indicated that debt to disposable income of South African consumers had slightly reduced, this was unlikely to be of any significance in light of the recent average wage increases, which were minimal after accounting for inflation.

The pressure on heavily indebted consumers was emphasised by Ismail Momoniat, the deputy director-general of the National Treasury, at the parliamentary portfolio committee hearings into proposed amendments to the National Consumer Act. He raised the possibility of lenders taking a “hair- cut” to provide some relief for over-indebted consumers.

In a statement issued after the interest rate announcement, FNB chief executive Jacques Celliers said the rate hike was positive news for investors dependent on interest income. “They have struggled under declining and stable rates in recent years.” He urged consumers to set aside additional amounts in their budgets before mortgage and other payments fell due at month end.

Shares in Nedbank fell 3.98 percent to R193, while Standard Bank lost 3.24 percent to R118.01. – Business Report