- After the Monetary Policy Committee (MPC) meeting, newly appointed South African Reserve Bank (Sarb) Governor, Lesetja Kganyago announced a July rate hike by 0.25% or 25 basis points.
- 4 MPC members favoured a 0.25% repo rate increase, while 2 MPC members were in support of it staying the same.
- The motivation behind Sarb’s July rate hike was to prevent the possibility of an out-of-control inflation spiral.
- Though the South African economy remains standing despite the Greek crisis, we’ve seen the rand slump alongside key-player currencies.
- Sarb couldn’t put off the July rate hike any longer, as slow growth, a weaker rand and sharply accelerating inflation continued to injure the economy.
- The repo rate sprung to 6% and the prime lending rate leapt to 9.5%.
- Further rate hikes are expected at the end of 2015 or start of 2016, as part of a larger hiking cycle designed to normalise rates and subdue inflation gradually.
- Since the beginning of 2014, lending rates have increased by 100%!
- At the same time, consumers have been hit with rising municipal fees and higher food prices due to drought, leaving them barely able to make ends meet.
- Oil prices are expected to spike, which means petrol prices will resume with their monthly jumps.
- Consumer confidence is at a 14-year low, mining and manufacturing is down, job security is threatened, load-shedding will continue, and further proposed electricity tariff hikes are on the way!
- Even though y/y inflation was at an unexpectedly lower 4.7% in June, it’s predicted to rupture the 6% Sarb inflation ceiling, while FNB anticipates the inflation rate to rocket above 7% in 2016’s first quarter.
- Debt repayments and debt-servicing costs will be higher, weighing heavy on already strained household cash flow and consumer spending power. Consumer confidence will drop even lower, while car and bond repayments will increase.
- As it is, consumers are struggling with overwhelming debt and the increasingly unreasonable costs of living. Repayment on a R1 million home loan, with a term of 20 years, will cost R163 more per month now, and R1956 more per year.
- The demand for property and property sales will slow, as buyers will no longer find homes affordable, while home owners will hold back on selling, opting for renovation instead.