South African Reserve Bank (Sarb) governor Lesetja Kganyago on Thursday announced a 50 basis-point increase in the repo rate to 6.75%, in line with the consensus for a 50 basis-point hike.
This means the prime lending rate will now be 10.25%.
Lending rates have risen by a cumulative 175 basis points since late January 2014.
Kganyago said the Sarb’s latest inflation forecast has deteriorated. Inflation is still expected to breach the upper end of the target and remain outside the target for the entire focus area.
The deterioration in forecast is mainly due to the exchange rate assumption and expected higher labour costs, he said at the end of the Sarb’s first monetary policy committee meeting for the year.
The rand firmed 0.67% to R16.33 from the previous close.
Jacques du Toit, senior economist at Absa, said the MPC’s decision to increase the repo rate again after announcing a rate hike in November, was taken against the background of factors such as the sharply weaker rand exchange since late last year, expected rising food prices in the near term due to the negative impact of the severe drought on agricultural production and the possibility of above-inflation electricity price hikes this year.
Ahead of the MPC meeting debt experts warned that an increase would be devastating for consumers, especially those already burdened by a high level of indebtedness.
DebtBusters CEO Ian Wason said consumers need to prepare themselves and find other means to pay their monthly expenses as opposed to taking out loans. DebtBusters’ latest Debtometer Report shows that its clients require 102% of their net income to service their debt before paying for any living expenses.
He said middle- and-upper income earners in particular should watch out for higher living expenses and to factor these into their monthly household budgets.
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