Guiding consumers since 2009

Is the unchanged repo rate really good news?

By Danielle van Wyk

Much to the relief of every South African pocket, came the announcement by the South African Reserve bank (SARB) that there will be no increase to the repo rate today. But some experts are of the opinion that the unchanged 7% rate does little to ease the financial strain already experienced by many.

Since last year South African consumers have seen a crushing total of three rate hikes, amounting to 100 basis points since November 2015.

As SARB governor, Lesetja Kganyago highlighted, the prediction of the continued intensification of petrol and food prices coupled with the expected average of a 6, 7 % inflation rate for 2016, we still have a long and slow road ahead to economic recovery.

But for now, the Monetary Policy Committee (MPC), has decided to allow for breather.

The repo rate, which translates into the interest rate at which SARB will lend money to banks, stays 7%. While the cost of borrowing money pauses at 10.5%.

This however does very little to alleviate the current struggle to make ends meet.

“With the cost of food, electricity, fuel and the general cost of living on an upward trend, consumers have been struggling to manage and afford their monthly expenses. This and three repo rate increases (since November) has proven fatal for many that were living on the edge of over-indebtedness. Suddenly, purchasing basic food items such as bread or milk is a struggle, forcing them to seek alternate sources of temporary income; the quickest being applying for or using more credit to get by on a day to day basis,” stated Ian Wason, CEO of debt counselling business DebtBusters.

“Payday loans (which have come under a lot of criticism recently) have been providing consumers with a quick and convenient way to access cash. Unfortunately, very few are able to stop at one pay day loan. Once consumers start along the road of requesting multiple payday loans, month after month, they very quickly become caught in a difficult to get out of debt spiral.

“While regulators have been actively implementing regulations to control and prevent reckless lending and expensive lending, Wason believes the root cause of the problem is not being addressed. “The lack of financial education in South Africa is where we need to start focusing. This is the real cause of the financial problems South Africans find themselves in,” Wason stated.

Also reluctant to view this as ‘good news’, was Sizwe Nxedlana, chief economist at First National Bank (FNB): “Despite the decision not to change rates, the SARB’s statement remained hawkish citing upside risks to inflation from global and domestic sources. While the recent data flow is supportive of the decision not to raise rates, the short-term inflation outlook is not rosy. Inflation is likely to accelerate in the latter part of this year peaking above 7% in December. However, inflation is most likely to decelerate thereafter. Following this logic there is some scope, albeit limited, for further rate hikes into the peak of consumer inflation later this year.”

“Consumers that are heavily reliant on credit must tighten their belts and find ways to pay down their debt. The wave of increases in inflation and the repo rate is not over,” warned Wason.

 Handy tip: If you are having problems with your debt, why not consider debt counselling?

 

Recent Articles

Featured Get personal with your finances – and tie the knot

As time passes, your financial products may not live up to your needs. Therefore, it’s important to take stock of what you’re paying for and adjust where necessary. We got in touch with financial advisers to find out how you can get your finances in order, and what you should do to ensure you’re financially stable.

Personal loan or business loan? The best way to finance your business

When starting your own business, you may have to rely on external funding. Perhaps you qualify for a personal loan, but would it be better to take out a business loan instead? We got in touch with a specialist to find out whether it’s best to take out a business loan or a personal loan to assist you with your ongoing business or start-up.

What to do when you’ve been denied a home loan

After months of scanning property sites and attending showhouse after showhouse, you’ve finally found what you’ve been looking for. But your dream of owning a home comes crumbling down when you receive the news that you’ve been denied a home loan. So, what now?

Best travel cards offered by top South African banks

Planning a trip abroad involves a lot of administration. You need to consider travelling arrangements, reasonable accommodation, and a daily itinerary. But have you considered how you’re going to pay your bills once you arrive? Besides considering bank costs, you also need to consider exchange rates.

Deals

Takealot January Big Sale

Price: Available on request
When: Until 31 January 2020
Where: Online

Annique Restore Package Special

Price: From R600
When: Until 31 January 2020
Where: Centurion

Ster-Kinekor Senior Citizens Discount

Price: Available on request
When: Daily
Where: Nationwide