Consumers 'to feel rate sting'
Cape Town - The shopping spree is over.
Red lights are flickering for South Africans who do not immediately tighten their spending belts and reduce their debt.
Not only do they face a petrol price hike of 31c a litre on Wednesday, but all indications are that the SA Reserve Bank is going to hike interest rates for the second time this year on Thursday.
And that's not all. Apart from the SARB being forced to hike interest rates to help rein in record debt levels and to keep inflation in check, the country is also subject to a weaker rand due to higher US interest rates, and soaring oil prices amid rising tensions in the Middle East.
All indications are that local interest rates could hit 12.5% by December, while a possible 13.5% is not excluded.
This means that an average household could by Christmas fork out about R1 000 more to cover their debts compared with their debt burden in June.
South Africans are currently spending 68% of their after-tax income on debt on houses, cars, credit cards, bank overdrafts and hire purchase transactions.
The SARB's latest quarterly bulletin show that households had run up a total debt of R686.8bn at the end of March.
That is almost twice the R333.2bn recorded at the end of 2002 before interest rates were reduced from 17% to 10.5% at the end of last year.
"Interest rates have come down to their lowest levels in 25 years in the last couple of years. Although the expected rate hikes of about 2 percentage points alone won't be enough to drive consumers over the edge, it could make a huge difference to their spending patterns if they don't start closing those spending taps now," said independent economist Noelani King-Conradie.
She warned "if, however, we're looking at a 3 percentage point hike, it could turn into a crisis".
"Everything will depend on the rand exchange rate. If the rand should fall to R8 against the dollar, we can expect interest rates to rise further."
Jacques du Toit, property economist at Absa, said all signs point to the SARB's MPC hiking interest rates by 50 basis points at the end of its two-day meeting on Thursday.
This will bring the current prime lending rate to 11.5% after a 0.5 percentage point hike in June pushed it up to 11%.
Du Toit expects another interest rate increase in October. "If the SARB continues its monetary tightening by 0.5 percentage points at each of its remaining MPC meetings, we're looking at a prime lending rate of 12.5% by December.
"Consumers who have home and car loans will feel the sting most," he said.
News source: www.news24.co.za
Posted by: www.SouthAfrica-CarHire.com
