Repo rate hike catches many napping
Cindy Preller, Evan Pickworth and Ntsakisi Maswanganyi
THE Reserve Bank's monetary policy committee (MPC) unexpectedly hiked the repo interest rate by 50 basis points to 5.5% yesterday. This means cash- strapped consumers will have to tighten their belts even more with record high petrol prices, electricity tariffs and food prices.
South Africa's big four banks – First National Bank (FNB), Standard Bank, Absa and Nedbank – soon afterwards confirmed they would hike their lending rates today by 0.50 of a percentage point‚ taking prime overdraft rates across all the banks to 9%.
Nelson Mandela Bay Business Chamber chief executive Kevin Hustler said the hike might catch many unaware. "Business owners and consumers alike have been battling under the pressure of a weak rand, burdened by ever-increasing costs in all areas. When interest rates rise, the cost of borrowing goes up, and consumers will have to dig deeper to service their existing bonds.
"We may see a decrease in consumption, but this should even out as experts predict local economic growth will pick up later in the year," Hustler said.
FNB chief executive Jacques Celliers said the last rate hike was in June 2008 when rates reached 15.5%. "Since then, we have had almost five years of falling and stable rates. Many of our peer countries have already hiked rates to ensure domestic economic and currency stability.
"We encourage our consumers to set aside additional amounts in their budgets before mortgage and other payments fall due at the end of the month. The rate hike is positive news for investors dependant on interest income," Celliers said.
Pam Golding Properties PE franchise principal Ian Olivier said with a R1-million bond, the increase would be about R300 more on a bond payment of R8700 per month, while the increase would be about R150 on a R500000 bond with a repayment of R4350.
"It will make a difference in property owners' budgets. Home owners should ensure they make provision that the rate may rise more in the future. But the hike will not impact hugely on the property market itself and the good trend should continue."
Jaco Rademeyer, of Jaco Rademeyer Estates, agreed the interest rate hike would not have a huge impact on local sales "as the rate is still very low".
He said the hike might be a wake-up call to buyers thinking of getting into the market. "I am sure the rate will remain steady for some time. It might be a shock for people as it was not expected, but it is not going to have a huge impact on buying power."
Reserve Bank governor Gill Marcus said it could not be said this was the start of a rate hike cycle.
The increase follows similar measures from other emerging market countries to stem rapid currency depreciation in the past month. Turkey's decision to raise overnight lending rates to 12% yesterday came hours after a surprise hike in India.
