Rate hikes: Consumers will pay for poor government decisions

Consumers are now possibly going to pay an even higher price, in the form of higher interest rates, for the increasing political instability that has caused the rand to take a severe tumble.

The interest rate is expected to increase again on Thursday, with Thys van Zyl, head of product development at Everest Wealth, being of the opinion that this increase could be even more than expected due to the rand having recently weakened to a historic low against the dollar following allegations that South Africa supplied arms to Russia.

After March’s interest rate hike of 50 basis points, it was expected that this could possibly be the last interest rate hike this cycle, but stubborn inflation, continued load shedding and continued political instability and uncertainty has paved the way for a further increase.

“Thursday’s decision to hike the interest rate will not only be to try to further combat inflation but also to protect the rand due to poor government decisions. The president of the Reserve Bank already said after the previous interest rate hike that everything possible must be done to stabilize the rand. Political instability is hurting consumer and business confidence and since the beginning of the year investors have sold billions of rands in South African shares and bonds and there has also been an increase in the sale of the country’s fixed assets.”

Thursday will be the tenth consecutive interest rate hike since November 2021 with the prime lending rate already above 11% for the first time in 14 years. Interest rates have been hiked by 425 basis points since the hike cycle started.

A home owner that bought a house for R2 million, financed at the prime interest rate, is already paying R5 500 more than in 2020. Another big increase could be the nail in the coffin for many consumers who simply can’t afford it anymore and could lose their homes and livelihoods. This while salaries do not keep up with inflation and the burden of additional increased expenses due to the rise in food prices and power tariffs. Consumers will also struggle more and more to keep up with their debt repayments.

Van Zyl pointed out earlier that if load-shedding’s impact on inflation cannot be reduced, persistent inflation will not be brought down – even if the interest rate is hiked three or four more times.

“The Reserve Bank will definitely have to start looking at other options than just applying interest rate hikes. Proactive thinking will have to be done to see how it can be made easier for cash-strapped consumers with the cost-of-living skyrocketing.”

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