Written by Ashley Lechman
Following the South African Reserve Bank hiking the repo rate by 75 basis points yesterday, many of the country’s financial market gurus are fearing the worst.
The Sarb’s Monetary Policy Committee (MPC) increased its benchmark interest rates for a fifth time in a row, this time by 75 basis points to 5.5% as the risks to the inflation outlook are assessed to the upside.
This means that the prime lending rate will now increase to 9%.
This was the MPC’s steepest repo rate hike since September 2002.
PwC South Africa senior economist Christie Viljoen expects the rate to increase in the coming years, which will plunge South Africans into new levels of desperation.
dependent economist Fanie Brink holds a different view.
He says the inflation rate is determined by all the local and international political and economic factors that have an influence on the supply and demand of goods and services, as well as on the value of the currency and economic growth.
By increasing interest rate hikes, the banks are in the process of pushing the economy into a serious worldwide recession.
Neil Roets, CEO of Debt Rescue, says that any way you look at it, this alarming hike in the repo rate is a signal to raise the red flags.
“Regardless of the rationale behind the steep interest rate hike and the inevitable increase in living costs that will follow, it is simply unrealistic to place more financial strain on consumers at a time when people are grappling with unbearable financial pressure like never before.
“Many more people will now be looking financial devastation in the eye. Most frightening is the domino effect this will have on the price of food. Already we have 7 million people suffering from chronic hunger, and 20 million people are going to bed hungry every night. Are we going to see half the nation going hungry by the end of the year? We simply cannot allow this to happen,” Roets said.
Mamello Matikinca-Ngwenya, FNB chief economist says: “The monetary policy committee’s (MPC) 75bps hike was slightly above our and the consensus expectation for a 50bps hike.
“The MPC has opted to further front-load interest rate hikes, which reveals the pressure on the local monetary policy authority to get ahead of elevated inflation and inflation expectations, avoid a significant narrowing of the interest rate differential between SA and key trading partners, while also confronting risks to growth.
“SA has not bucked the trend of upside inflation surprises, and this has broadly resulted in a lift in expected inflation. The rise in inflation expectations is of particular concern to the MPC, because it tends to be stickier than supply-driven inflation.”
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