Yesterday the Governor of the South African Reserve Bank did what we all feared she would – increase the repo rate. She announced that the rate would go up by 50 basis points from 5% to 5.5%, which means the prime rate will now stand at 9%.
“In the light of these circumstances and taking account of policy trade-offs, the MPC has decided to increase the repurchase rate by 50 basis points to 5,5 per cent per annum as of 30 January 2014,” said Marcus.
Tough times
Marcus said South Africa’s economic outlook remained subdued. “Although an improved outcome is forecast for 2014, growth is still expected to remain below estimated potential output of between 3,0 and 3,5 per cent. The Bank’s forecasts for growth in 2014 and 2015 have been revised to 2,8 per cent and 3,3 per cent respectively, down from 3,0 per cent and 3,4 per cent in the previous forecast round,” said Marcus.
Asked whether the rate increase had been a bit pre-emptive, Marcus replied: “If we thought it was premature we wouldn’t have done it.”
Marcus refused to say whether South Africans would see further rate hikes this year but said: “We won’t say this is a sign of things to come. It all depends on the data we see and how we will assess the situation.”
The impact on you
But what will this mean for your finances? Will you be paying more every month – our editor explains in simple terms the impact this week’s news will have on your wallet. Click here for the story.
John Loos, FNB’s household and property sector strategist, said it’s not inadvisable to look at what options you have and consider fixing rates: “Fixed interest rates are an option, although once the repo rate starts to rise the fixed rates normally become less attractive, because fixed rates are determined to a large extent by market expectations of future interest rate moves. But fixed rates are not about beating the market. They are about fixing a certain portion of one’s cash flows so as to eliminate interest rate hiking risk,” he said.
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