Guiding consumers since 2009

6.25% repo rate bad news for consumers

By Staff Writer
The repurchase rate (repo rate) will increase to 6.25% from 6%, the Monetary Policy Committee (MPC) has decided. The prime lending rate has increased to 9.75%. This was announced by Lesetja Kganyago, Governor of the South African Reserve Bank (SARB) during a media briefing.
 
This increase is bad news for consumers who are living in debt and are used to purchasing items on credit. The cost of credit and their debt will be increasing, and with the festive season approaching, people are likely to be spending more as they prepare for the holidays.
 
Kganyago noted that the MPC had a tough decision to make as to whether to act now with a rate hike or to hold off.
 
He said: “On the one hand, given the relative stability in the underlying of core inflation, delaying the adjustment could give the MPC room to re-assess these unfolding developments at the next meeting, and avoid possible additional headwinds to the weak growth outlook. On the other hand, delaying the adjustment further could lead to second-round effects and require an even stronger monetary policy response in the future, with more severe consequences for short-term growth.”
 
The cost of debt
 
This rate hike is not good news for consumers heading into the festive season. Ian Wason, CEO of DebtBusters, stated: “The pleasant sounds of Jingle Bells playing in our favourite store is now an alarm bell for credit active consumers that get caught up in this year’s festive season shopping frenzy. Those that continue to fund their lifestyles on credit are on a slippery slope towards financial disaster!
 
“We are already seeing how the heavy reliance on credit is impacting consumers with clients requiring 106% of their net income to service their debt, at the time of applying for debt counselling,” added Wason.
 
Adrian Goslett, CEO of RE/MAX of Southern Africa, revealed: “The Reserve Bank had to address the current economic conditions that the market is facing at the moment, however it will be a balancing act to try and counteract inflation pressure while not stunting growth. It is expected that there will definitely be further rate increases during the course of 2016. Prospective property buyers, along with those who currently own property should prepare for this by tighten the reigns on their spending habits and building a savings reserve. While those with high debt levels will be adversely impacted by a hiking cycle, those who have saving in place will benefit greatly.”
 
Goslett highlighted the need for consumers to decrease their debt levels.
 
Wendy Monkley, head of marketing at DebtBusters pointed out: “Many South Africans are in a debt pressure pot that is about to blow. The cost of living is increasing, the cost of credit is increasing and credit providers are tightening their lending belts. Consumers that are accustomed to living off credit are now turning to more expensive unsecured ‘pay day’ type loans to keep their families afloat. Not only are they caught in a debt trap, but they will very soon be reaching a ‘debt end’.
 
“Now is the time when consumers should communicate with their families and friends to agree not to purchase Christmas gifts this year. In addition, any bonuses or additional income should be paid into debt,” stressed Monkley.

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