Cost of living rises with new repo rate increase

You will have to pay more to service your home loans, vehicle installment and credit debts as the Reserve Bank hikes the repurchase rate. 

Reserve Bank governor Lesetja Kganyago on Thursday announced that the repurchase rate had been increased by 25 basis points to 7.25% per year, with effect from Thursday. The purchase rate is the rate at which the commercial banks are charged when they borrow money from the Reserve Bank. The banks then charge their customers more in order to make cover this extra cost. 

“Three members of the (monetary policy) committee preferred the announced increase and two preferred a 50 basis points increase,” Reserve Bank governor Lesetja Kganyago said.

He said while the South African economy grew by a relatively strong 1.6% in the third quarter of 2022, the expansion was not broad-based.

“We forecast no growth in the fourth quarter. For the whole of last year, GDP growth of 2.5% is expected (up from 1.8%),” Kganyago said.

He said for 2023, and as a result of extensive electricity blackouts and other logistical constraints, the Bank now forecasts GDP growth of only 0.3%.

“Given the scale of load-shedding, the Bank estimates that it deducts as much as two percentage points from growth in 2023, compared to the previous estimate of 0.6 percentage points.”

Kganyago said over the medium term, the forecast took into account ongoing high levels of blackouts, and more modest household spending and investment growth than previously.

“Investment is still positive but is revised down due to weaker confidence and lower expected growth,” Kganyago said.

He said with declining commodity prices, exports were also forecast to be less robust.

“The forecast incorporates an assumption of increased load-shedding in each year compared to what was pencilled in at the time of the November meeting.”

Kganyago said the revised repurchase rate remained supportive of credit demand in the near term, while raising rates to levels more consistent with the current view of inflation and risks to it.

“The aim of policy is to anchor inflation expectations more firmly around the midpoint of the target band and to increase confidence of attaining the inflation target sustainably over time.”

CEO of Debt Rescue, Neil Roets, said the hike was bad news for consumers who are paying off debt on property, vehicles and credit cards.

“Consumers are hanging on by a thin thread, and there is no more room to manoeuvre. South Africans have yet to feel any relief on their pockets when shopping for food, while the rest of the world has benefitted from decreases in the prices of food items, reflecting the effect of falling global prices and improved supply chains. With 81% of households battling to put enough food on the table, how much longer can people realistically hold out?” he said.

Meanwhile, fuel prices across the board are set to increase in February, said the Automobile Association (AA).

TimesLIVE