Interest rate hike ‘will hurt consumers’

File Picture: Karen Sandison

File Picture: Karen Sandison

Published Mar 30, 2022

Share

DURBAN - ECONOMISTS and analysts say while the South African Reserve Bank’s decision to increase the repo rate by 25 basis points last week was expected, it was likely to put a heavier burden on consumers.

Experts said the impact of the Russia and Ukraine conflict had caused international countries to increase their interests rates, and it had been expected that emerging economies like South Africa would follow suit.

Mervyn Abrahams from the Pietermaritzburg Economic Justice & Dignity Group (PMBEJD) said that with rising inflation, there was a need for an interest rate hike.

“One of the major concerns is the rand, and to ensure a stronger rand, the South African Reserve Bank was forced to hike the interest rate. However, it remains to be seen whether the increase in the interest rate will have a positive effect on the economy.”

Abrahams added that the interest rate hike would have an impact on the consumer. “It will place a further burden on consumers who are already strained due to the rising cost of fuel and even with the Eskom tariff increase (set for April).

“I would say that the SA Reserve Bank should be cautious when increasing the interest rate and not just follow international trends as it will start to depress consumer confidence, and the economy and businesses are dependent on the spending of the consumer.”

Professor Bonke Dumisa, an independent economic analyst, said that while the interest rate decision was expected, it was regrettable.

“We respect the job of the South African Reserve Bank, and we know that the consumer inflation rate for both January and February is quite high at 5.7%. However, with the rising costs that the consumer is feeling, especially with the price of fuel, one wonders if the Reserve Bank could have waited to assess the situation at the next Monetary Policy Committee meeting in May. We have to be concerned as the consumer will see more increases in the fuel price due to the ongoing Russia and Ukraine conflict.”

Professor Irrshad Kaseeram, from the University of Zululand’s Economics Department, said one should remember that there were drastic decreases in the interest rate during the hard Covid-19 lockdown.

“We are now seeing an increase in the interest rate that is being primarily driven by the increase in the inflation rate. The interest rate hike is necessary as the economy can’t stand to see the rand drastically depreciate.

“Unfortunately for the consumer, we will start to see a food price increase, all mortgages, home loans, and car finances will see an increase, and the consumer will be paying more.”

Kaseeram said with consumers paying more on debt repayments, there would be less money in their pockets.

“We could well see a demand for a wage increase and also with less money in the pocket it will lead to the consumer borrowing more and an increase in debt.”

Kaseeram added that businesses would also feel the impact of rising debt.

“Businesses, when they are forced to pay more and feel the pinch, will pass it on to the consumer. We need decisive leadership from President Cyril Ramaphosa and the Minister of Finance Enoch Godongwana to implement policies and strategies that will help grow the South African economy and help mitigate the impact of inflation.”

Professor Dilip Garach, a tax economist, said that consumers were already burdened with higher fuel and food prices, so the interest rate hike will put immense pressure on those consumers who are borrowing money to make ends meet.

“A rise in the prime lending rate will mean an increase in monthly instalment payments for those who have borrowed money, but fortunately, the expected increases will be gradual over a period of time. Borrowers will have to make adjustments to their lifestyles.”

Related Topics:

interest rates