Despite growing inflationary pressure, the South African Reserve Bank has decided to keep the interest rates at their current levels to provide some financial relief to consumers during this hiking cycle. The benchmark repo rate will remain at 7% and the prime interest rate will stay at 10.5%.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says this is welcomed news considering that a rate hike at this stage could be detrimental to many consumers, who are already dealing with increasing food prices, rising electricity tariffs and petrol price hikes. “It is one thing dealing with one or two increases; however households have been subjected to several pricing hikes across the board, creating a compounding negative impact on their financial wellbeing,” says Goslett. “For a number of consumers a rate hike at this stage could be more than they could bear. In fact, we are already seeing an increase in the number of distressed properties entering the market this year. Further rate hikes will lead to more and more homeowners having to let go of their properties throughout the course of the year.”
He adds that while economists are predicting that inflation could reach around 8% by the end of the year, previous rate hikes have done little to curb inflationary pressure at this stage and economic growth is marginal at best. “Higher rates would only serve to further slow economic growth as most consumers are loan dependent to some degree. As the cost of credit increases, fewer consumers will be able to afford high-ticket items such as property and cars,” says Goslett.
During the next month all eyes will be on the possible threat of a credit rating downgrade to sub-investment status. If this happens, it will make South Africa a less attractive investment option, which will likely result in a depreciation of the rand. This means that imported goods such as oil and the food the country has to import due to the drought, will be more expensive. This would push inflation up, causing the SARB to once again hike rates.
Consumers need to use this breather constructively and pay down debt where possible. “Prospective homebuyers and homeowners alike should draw up a budget to assist them in dealing with the challenging economic environment they find themselves in. Consumers will be in for hard times ahead, if they don’t streamline their spending and build up their cash reserves,” Goslett concludes.
