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Analysts are expecting Reserve Bank to announce an interest rate increase today

By unknown | Dec 06, 2007 | COMMENTS [ 0 ]

Lihle Z Mtshali

Lihle Z Mtshali

The South African Reserve Bank is expected to announce yet another interest rate hike when the Monetary Policy Committee concludes its two-day meeting today, and some analysts predict yet another hike early next year.

A 50-basis point increase today - the final one for the year - will take the prime lending rate from 14percent to 14,5percent. This is the rate at which the central bank lends to commercial banks and at which those banks lend money to consumers.

A rate hike today - the eighth consecutive increase since May 2006 - will mean that someone with a R500000 home loan, plus car finance for R100000, both taken out in May 2006 at the prime-lending rate of 10,5percent, will now pay R1612 a month more than he, or she paid in June last year to pay off both of these debts.

The senior manager of investments and economic services at Credit Guarantee Insurance, Luke Doig, said: "We are expecting a 50-basis point increase now and possibly another one early next year, causing prime to reach 15percent."

Rate hikes place everyone with credit under more pressure, because it becomes tougher to service those debts, but analysts say hikes are a necessary evil to curb the country's runaway inflation.

"It will be a very tightly run affair because the CPIX [Consumer Price Index excluding mortgage bonds] at 7,3percent is above SARB's targeted band of between 3percent and 6percent," said Doig.

The sub-Sahara Africa specialist at Citigroup, Leon Myburgh, said inflation was only expected to stabilise to the target range by the second half of the year, and although a rate hike could be expected today, he didn't think there would be a further increase in January.

Last week Reserve Bank Governor Tito Mboweni urged consumers to "tighten their belts" after Statistics SA said consumer price inflation had hit 7,3percent - the highest in more than four years.

On Tuesday, however, a First National Bank consumer confidence index showed a surprising rebound in consumer confidence, given the adverse developments such as high interest rates and the National Credit Act.


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