Increasing the repo rate last week by 25 basis points to 3.75% might have been a good decision for the hawks on the monetary policy committee (MPC) of the Reserve Bank (Sarb) who want to keep inflation in check, but economists and consumers say it was not a good decision for already over-indebted consumers and the weak economy.
It was a split decision, with three of the five members voting for the increase, while the other two wanted the rate to remain unchanged.
The increase means that the prime rate offered by the banks is now 7.25% and although it is still lower than two years ago, consumers are not in the same position they would have been if the pandemic had not happened.
The question remains if this was the right decision for South African consumers in the current economic situation, with a fourth wave of Covid looming in the next two months, price increases on the back of the massive petrol price increase and load shedding. Consumer debt remains at R1.9 trillion.
Dr Andrew Golding, chief executive of the Pam Golding Property group, said: “There are concerns that raising interest rates now may hamper our still fragile economic recovery.
“Therefore, the MPC’s decision to increase the repo rate is disappointing for first-time home buyers and consumers with existing mortgages.”
The pandemic has resulted in job losses, salary cuts and small increases if any. The interest rate increase means that someone with a home loan of R1 million will have to make a monthly payment of R7 904 up from R7 753.
Consumers also have to get ready for more increases next year, said Tony Clarke, managing director of the Rawson Property Group.
“The MPC has already expressed concern over the effect that Eskom’s tariff hikes and unstable oil prices will have on inflation. If this rises too far above the inflation target midpoint of 4.5%, the Sarb is very likely to increase interest rates.”
South African consumers have always had bad credit records and very little savings. The latest debt statistics available are for the second quarter this year, before the unrest in July and the recent petrol price increase.
According to the Consumer Credit Market Report of the National Credit Regulator for the second quarter:
- The total value of new credit granted increased by 5.81% compared to the first quarter, from R138.81 billion to R146.87 billion.
- The value of new mortgages granted increased by R2.32 billion (4.27%) compared to the first quarter and by R43.60 billion (335.77%) compared to the second quarter of 2020.
- Secured credit, which is dominated by vehicle finance, increased by R2.23 billion (5.45%) compared to the first quarter and by R22.67 billion (110.50%) compared to the second quarter of last year.
- Unsecured credit increased by R2.32 billion (11.51%) compared to the first quarter and by R12.23 billion (119.71%) compared to the second quarter of last year.
- Credit bureaus held records for 26.22 million credit-active consumers, a decrease of 4.77% compared to the 27.53 million in the previous quarter.
- Consumers classified in good standing decreased by 868 581 to 16.14 million consumers. The Experian Consumer Default Index shows consumers defaulted to the value of R19.15 billion for the first time during the second quarter.