IN South Africa, almost 20 million people go to bed hungry each day, and 30 million run out of money every month, making it difficult to put food on the table. This is the bleak backdrop against which the next interest rate hike will be implemented by the South African Reserve Bank (SARB) this week.
Economists at the Bureau for Economic Research (BER) warned in a research note that the May increase could be larger than previously forecast.
According to the BER, factors such as rapid policy normalisation and the associated recent sharp weakening of the rand dollar exchange rate, as well as the sustained upside risks to domestic inflation, mean that the SARB is likely to hike the repo rate by 50 basis points next week – far higher than what was predicted earlier in the year.
This is substantiated by credit rating agency Moody’s forecast that South Africa’s interest rate will hit 8 percent in 2022 due to our inflation rate hovering on the upper end of the South African Reserve Bank’s target band of 3-6 percent inflation.
The forecast comes after the US Federal Reserve hiked its policy rate by 50 basis points (bps) last week, the biggest increase in more than 20 years.
This is very bad news for South Africa. It’s no secret that when the US dollar becomes unstable, it has a ripple effect across the world – and the South African rand is no exception.
The steep increase in interest rates will likely leave an even higher percentage of lower-middle to middle-income households paying significantly more for vehicles or properties to the extent that they would be forced to ‘buy down’ or cancel their insurance and savings products.
This is reflected in the most recent Debt Rescue survey results, showing that 53 percent have reduced their insurance products, while 20 percent have cancelled their policies.
This is never a good sign, especially in the current uncertain financial climate, and points to the level of desperation people are experiencing. The only other alternative is simply to incur more debt to cope with the additional expenses.
One of the most serious repercussions resulting from such a hefty interest rate hike is the threat to food security.
It’s inevitable that such a sharp increase will, once again, drive up the price of basic food stuff, leaving even more South Africans' food vulnerable. Putting nutritious food on the table is becoming next to impossible for millions of breadwinners countrywide, and this is a direct result of recent food price increases that have placed staple foods like cooking oil, potatoes, beef, fish, cabbage and bananas beyond the reach of millions of households.
Debt Rescue’s recent survey results showed that 54 percent of households have had to replace nutritious foods with cheaper, more filling ingredients.
Furthermore, the Household Affordability Index food basket, released by the Pietermaritzburg Economic Justice and Dignity Group (PMBEJD) in April, shows yet another increase of R92.84 (2.1 percent), taking the cost of the average food basket from R4 450.09 in March 2022 to R4542.93 in April 2022.
For many people, this amounts to their entire salary.
Does this mean people below the breadline should live without the other essentials like water and electricity? And how are they supposed to make their way to work every day?
The reality is that more and more staple foods will disappear from the table in millions of households this month – and who knows what will happen next month.
Neil Roets is the CEO of Debt Rescue.
BUSINESS REPORT ONLINE