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South Africans are likely to feel the pinch with yesterday's interest rate increase

By unknown | Jun 08, 2007 | COMMENTS [ 0 ]

Staff Reporter

Staff Reporter

The latest interest rate increase of 50 basis points announced yesterday by Reserve Bank governor Tito Mboweni means the cost of repaying loans has increased 2,5percent since a year ago.

"Using a practical example, a household with a mortgage bond of R200000 will now be repaying R418 more per month compared to what they were paying before the hike in rates began in June 2006," Oasis Asset Management spokesman Ridwan Kajee said.

"If they had to still pay off a new car to the value of R150000 plus service their credit card debt of R50000 (using conventional assumptions), the increased debt serving cost is R627 per month. Couple this with an increase in the price of petrol from R6,24 to R7,00 a litre over the period, according to Oasis Research, the incremental cost due to inflation and interest rate pressure on the average consumer is a phenomenal R713 per month. The impact of food inflation increases this amount further."

Kajee advised people to avoid using high-cost debt available through credit cards, microlenders and furniture retailers.

"It is important that consumers live within their budgets. One of the best investments that can be made is to repay existing debt. Consumers must be wary of falling into the debt trap," he added

Oasis believes that inflation will continue to be evident in the second half of the year.

"We expect a further 1percent to 1,5percent increase in the second half of the year. Due to the widening of the current account deficit we expect rand depreciation. Oasis advises consumers to remain vigilant regarding their use of debt," Kajee said.

Mboweni said in his speech yesterday: "The breach of the target is in the past and there is nothing that monetary policy can do about past inflation. Nevertheless, the Monetary Policy Committee [MPC] cannot ignore the possible impact of this breach on inflation expectations and the public's understanding of the monetary policy process. Monetary policy acts with a lag, and the focus of the MPC will remain, as always, on the medium-term inflation outlook, which is the period over which monetary policy can be effective.


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