The South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) hiked the repo rate by 25 basis points to 6% per annum, effective from 24 July 2015, its governor Lesetja Kganyago announced on Thursday.
Banks will raise their prime lending and variable mortgage interest rates by the same magnitude to 9,5% per annum, according to Jacques du Toit, a senior economist at Absa.
“The Reserve Bank remains concerned about the outlook for economic growth that is constrained by severe electricity shortages, low levels of consumer and business confidence, inflationary pressures and the possibility of rising interest rates in the United States,” he said.
“The forecast is for interest rates to be hiked again later in the year and through the course of 2016 in an attempt to contain inflation,” said Du Toit.
“Consumers with debt will thus be affected by rising debt repayments as a result of the higher interest rates, which will further add to their financial strain.
“Banks will continue to monitor economic and consumer-related trends in decisions regarding risk appetite and lending criteria, which will affect the accessibility and cost of credit,” he said.
“Although this increase is minimal, with a minor effect on the monthly instalment, buyers should not downplay any hikes in the interest rate,” says Rudolf Mahoney, Head of Brand and Communication at WesBank. “Those with other debts – such as credit cards and home loans – will find themselves with less disposable income.”
For a car loan of R250 000, financed over 60 months at an interest rate of 10.5%, the interest rate will now be 10.75%, resulting in a monthly instalment that is R31.15 higher, at R5486.13.
Consumers who have home loans will be more severely impacted, and those who have additional debt will find the increased loan repayments eating into their disposable income. South African household debt levels remains high, which is affecting consumer credit profiles as well as their ability to obtain new credit.
“This hike in the interest rate, combined with a depreciating rand, will continue to affect living costs and put pressure on consumers’ highly constrained budgets,” says Mahoney. “The net result is that consumer confidence will remain subdued, ultimately impacting new vehicle sales and the GDP.”
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