Cape Town - Consumers will feel the financial pinch of the latest interest rate hike, with economists warning that yet another hike may be on the cards in the first half of next year due to slow economic growth.
Mike Schussler, an economist and founder of economist.co.za, said there was a strong possibility of another interest rate hike.
This would mean that cash-strapped consumers would struggle to repay monthly bond, vehicle and other financial agreements.
“Interest rate hikes are not good for consumers as it makes it difficult for people to repay their financial agreements. It is a tough time in our economy, and growth has already been downgraded by the finance ministry. Next year we could see another increase of 25 basis points because the current interest rate hike will lead to weaker growth,” he said.
Reserve Bank governor Lesetja Kganyago announced last week that the interest rate would be increased by 25 basis points.
The repo rate is at 6.75% while the prime lending rate will be 10.25%.
Schussler said consumers had been paying off debt and not taking up new debt.
“What we have seen is that the debt levels of consumers are controlled and people are actually paying off their debt and trying not to make new debt. However, a decision of another increase will also be affected by the increase in electricity prices,” he said.
Professor Raymond Parsons from North West University said the Finance Ministry’s decision to reduce the growth forecast for this year from 1.7% to 1.2% was troubling.
“It confirms similar recent downward revisions of growth expectations by several private sector economists. Apart from anything else, weak economic growth now puts a strain on the original 2018 growth targets outlined in the February 2018 Budget speech and on the fiscal commitments that have been made. A turnaround in the economy is necessary. While recent political changes and steps to tackle governance issues have elicited positive reactions, investors still need to see policy certainty and consistency,” he said.
South African property giants expressed concern at the interest hikes.
Harcourts Africa chief executive Richard Gray said the impact of continual financial pressure on a straining consumer could potentially have devastating effects on economic participation.
“This has already started resulting in an extended negative period for the man on the street, and the ability to recover from these pressures could take a long time,” he said.
Herschel Jawitz, the chief executive of Jawitz Properties, said that with inflation at 5.1%, property prices would continue to decline in real terms.
This, Jawitz said, meant that the residential market offered the best value to buyers since the market crash in 2009.
@JasonFelix