Why Sarb Raises Repo Rate To 7%

The SA Reserve Bank (Sarb) Governor has announced a 25 basis points repo rate hike, bringing the rate to 7%

The prime lending rate that the banks charge consumers will now rise to 10,5%, so expect to pay more on your bond, vehicle financing, credit cards and any other debt you carry.

Kganyago said that recent volatility of the rand, rising inflation and food prices accelerating faster than previously expected were among the key drivers of the Monetary Policy Committee’s (MPC’s) decision to once again hike interest rates.

The latest increase follows a 50 basis points hike in January this year.

Absa senior economist Jacques du Toit said interest rates have increased by a cumulative 200 basis points since early 2014 and have since returned to levels last seen at the beginning of 2010.

“The latest interest rate hike came against the background of continued upward pressure on inflation as a result of trends in and the outlook for major inflation drivers, such as the exchange rate, food prices, electricity tariffs, and oil and fuel prices,” he said.

Further hikes are expected for the rest of the year, which du Toit said would mean that debt repayments will increase “contributing to additional financial strain on consumers”.

“Banks are to continue to monitor economic and consumer-related trends regarding their risk appetite and lending criteria.”

Pam Golding CEO Dr Andrew Golding said that the additional hike so close to January’s increase was unfortunate.

“We had hoped that the repo rate would remain stable following the good news that the rand had strengthened since the last MPC meeting and South Africa’s fiscal policy has tightened, taking some pressure off monetary policy. Coupled with this, on the global front the Federal Reserve Bank is not hiking rates as aggressively as initially anticipated and the European Central Bank continues to ease monetary policy,” he said.

“Although we are currently in an upward repo rate cycle, interest rates are still not near the highs experienced in 2008 and are not expected to increase significantly during the year. So although housing activity in South Africa has slowed along with house price growth, the demand for homes remains strong and the market retains its resilience.”

The Sarb expects inflation to average 6,6% this year.

source: Destinyman


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