Yires urged to tighten belts as rates go up by another 50 basis points

todayMay 25, 2023 52

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Yires are urged to tighten their belts after the South African Reserve Bank increased repo rates by 50 basis points to 8.25%.

Reserve Bank Governor, Lesetja Kganyago, announced the Monetary Policy Committee’s (MPC) decision in Pretoria this afternoon.

This means Yires will now have to dig deeper in their pockets for their car and home loan repayments as the prime lending rate now sits at 11.75%.

This is a 10th consecutive hike since November 2021 and has pushed the prime lending rate to levels last seen during the aftermath of the 2007-2008 global financial crisis.

“The rise in South Africa’s headline inflation rate has been shaped primarily by fuel, electricity and food price inflation. Compared to the previous meeting, fuel and electricity price inflation is somewhat lower and the food price inflation higher. Fuel price inflation is expected to be negative 2% in 2023. The electricity price forecast is lower at 11.6% in 2023; 13.4% in 2024 and unchanged at 10.9% in 2025,” says Kganyago.

The Reserve Bank Governor says failure to act against inflation would be detrimental to the poor in the long run.

“We’ve got to administer this bitter medicine to avoid surgery or being in the intensive care unit,” he added.

Chief economist and a director at Efficient Group, Dawie Roodt, says the Reserve Bank should not be blamed for hiking the repo rate.

Roodt says the main contributing factors have mainly been the politics the country finds itself embroiled in.

The veteran economist says the decision by the Reserve Bank is no surprise, as it was pushed into a corner by government.

“The SARB is trying to clean up after government after they caused a messed up the economy. I am afraid this is going to be painful for most South Africans. It means the South African economy is probably heading for a recession or a very very weak economy this year and everything that goes with that. But don’t blamed the South African Reserve Bank for doing what they have done because they simply have no alternative because without the interest rates at the moment, inflation will become a much bigger problem,” he adds.

Labour federation, SAFTU, has expressed dismay at the MPC’s decision.

The organisation’s Trevor Shaku says it shows that the committee doesn’t care about the working class.

“If you indeed care about the working class you cannot be hiking interest rates because interest rates have various implications and one of those is in the interim period they lead to inflation because small businesses often absorb the new debt serving costs through pricing.”

Shaku says this could spell disaster for South African workers in a country that has an unemployment rate that’s among the highest in the world, sitting at 32.9%.

He believes the Reserve Bank needs to find new ways to cushion the working class.

“You are starving the working class because they are going for retrenchments if those businesses that employ them default and go bankrupt. We think the bank has to consider insuring the coordination between fiscal policy and industrial policy. The two can be combined to ensure that production and value creating process is created and in that process – new values are created,” adds the SAFTU spokesperson.

The rand plunged to a record low of R19.78 to the US dollar after the rates announcement, with some experts saying the negative reaction could mean the markets view the MPC’s decision as a potential policy mistake.

Written by: Lindiwe Mabena

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