An upward trend in the prime lending rate looks set to continue this year.
Some economists predict an increase of 50 basis points when the Reserve Bank meets at the end of January, while others suggest that more frequent, modest rate hikes could happen during the year. According to ABSA Housing Review Q4 analyst, Jacques du Toit, domestic interest rates should increase further by the end of this year, driven by inflationary pressures and higher US interest rates.
Headline consumer price inflation averaged 4,5% in the first nine months of last year. The housing review forecasts that inflation will average 5,7% this year. The rand exchange rate, oil prices, food prices and electricity prices are seen as the main risks to the inflation outlook.
Du Toit singled out the household sector as facing increased financial strain last year. The housing review says household finances will continue to be affected by factors such as economic growth, employment, income and consumption growth, debt levels, inflation, and interest rates. Credit risk profiles will probably stay under pressure and remain a key factor in the accessibility of, demand for and growth in household credit. A persistent lack of sufficient savings and access to credit, together with the aspect of consumer confidence, will to a large extent drive household consumption expenditure, and eventually economic growth.
This article originally appeared in Neighbourhood, Sunday Times.