Cape Town - South Africans are getting poorer and economists fear on Thursday’s 50 basis point hike by the SA Reserve Bank (Sarb) will be significantly detrimental to consumers who already can’t see any light at the end of the tunnel while the cost of borrowing keeps increasing.
There are fears that the hike will lead to defaults and possible sell-offs of houses, car repossessions and possibly a recession.
Anchor Capital Investment Analyst Casey Delport said that with the repo rate now at 8.25% and the prime rate at 11.75%, this hike would affect buyers and homeowners.
“It will result in higher repayments of home loans and other credit, and put further pressure on the cost of living and disposable income.
“Nonetheless, the risks of allowing inflation to persist at high levels in any given economy is far greater. Moderate and controlled inflation is what is required for economic growth and stability – something South Africa is greatly in need of.”
Lew Geffen Sotheby’s International Realty chief executive Yael Geffen said the Reserve Bank would have been hard-pressed to not raise the repo rate but this would put further strain on the property sector.
“My advice to prospective buyers is to seek bond pre-approval so you know what you can afford. Also, buy conservatively to allow for another possible rate hike before the end of the year.”
Chairperson of the Seeff Property Group Samuel Seeff said that as a result of the latest 50bps interest rate hike, monthly bond repayments over a 20-year term would increase by about R344 for every R1 million of your bond.
● R1 000 000 bond – extra R344 from R10 493 to R10 837
● R1 500 000 bond – extra R517 from R15 739 to R16 256
● R2 000 000 bond – extra R689 from R20 985 to R21 674
● R2 500 000 bond – extra R862 from R26 231 to R27 093.
Earlier this month, the rand plunged to its lowest point against the US dollar, decreasing to R19.47 at one point, partly due to the accusation from the US ambassador that the government was arming Russia as well as investor fears of a potential grid failure.
Efficient Group economist Dawie Roodt said: “The increase in interest rates is really going to damage the South African economy. The economy is already not growing and I think this increase could push the South African economy into recession.”
Head of Applied Economics at CPUT, Maarten van Doesburgh, said interest rate hikes were not good for the average consumer and for the economy as a whole.
“Food inflation is at its highest in many years. We’re seeing significant price increases across the board. This is also driven by the fuel price increase. The fuel price increase is driven by the weak rand, making the cost of imported fuel more expensive,” he said.
Meanwhile, as the cost of living increases, with food inflation hitting a 14-year high in March of 14.4%, the impact of basic goods and necessities is putting pressure on consumers’ pockets.
Red Fox Insight Quantitative director Marilu Smit, whose firm carried out a survey of taxi commuters, said it was no surprise that the data showed that food was the biggest monthly expense for almost half of 698 taxi commuters who were surveyed.
“Despite this, 42% said they still enjoy smaller luxuries, such as buying games for their phones.”
She said although the unemployment rate within this group of commuters sat at 31%, their unemployment survey showed that 60% of them were looking for work.