What The Repo Rate Increase Means For Your Loan Repayments

The South African Reserve Bank’s Monetary Policy Committee (MPC) has once again hiked the repo rate in their efforts to quell rising inflation. The last two increases to the repo rate are the two largest successive interest rate hikes in the last 20 years.

The reserve bank has increased the repo rate by 75 basis points. Three members of the South African Reserve Bank’s Monetary Policy Committee (MPC) approved the increase while two members were in favour of a 100 basis points hike.

The increase which will take effect on 23 September 2022 pushes the repo rate to 6.25% per year with the prime lending rate climbing to 9.75%. This essentially means that people who have debt will have to pay higher interest rates to service their loans.

Reserve Bank Governor Lesetja Kganyago says the increase was aimed at anchoring inflation expectations around the midpoint of the target band and increasing confidence in hitting the inflation target in 2024.

By keeping inflation to the target band, the committee is hoping to reduce the economic costs of high inflation and enable lower interest rates in the future.

“The MPC will seek to look through temporary price shocks and focus on potential second-round effects and the risks of de-anchoring inflation expectations. The Bank will continue to closely monitor funding markets for stress,” explained Kganyago.

Mervyn Abrahams from the Pietermaritzburg Economic Justice and Dignity says individuals with debt will now have less money to purchase food, transport and other essential goods to survive.

While there is a need to control inflation, there are concerns about the impact this increase may have on South Africa’s Gross Domestic Product (GDP) and the economy. This as a contraction in the economy could lead to further job losses and worsen the economic situation of the country.

See also  Will Nsfas Consider Your Early Application?

They explained, “If our economy contracts any further we are looking at possible job losses in the next couple of months and that might be worse for the South African economy than a 7.8% inflation rate at this moment”.

Abrahams says the economy needs consumer demand to purchase goods to increase to grow. However, they argue that increasing interest rates could hinder this.

Leave a Reply