SARB increases repo rate by 25 basis points

Private Property South Africa
Private Property Reporter

The prime lending rate will increase from 9.25% to 9.50% following the decision earlier today by the SARB Monetary Policy Committee (MPC) to increase the repo rate by 25 basis points. The new rate is effective on all prime-linked loans from Friday 24 July 2015.

“Almost a year ago, to the day, we had the last rate hike of 0.25% on 18 July 2014. However, today consumers are under increased pressure with costs of transport, energy and food rising steadily. Even with gradual interest rate increases like this, consumers should take a careful look at their budgets to make sure they do not allow costs to exceed income. Savings on small items can have a positive impact without creating hardship at home,” says FNB CEO Jacques Celliers. “While consumers with loans will feel the pinch of reduced disposable income, customers earning income from deposits, such as our pensioners, will see additional income flowing from higher rates,” adds Celliers.

Says Sizwe Nxedlana, Chief Economist at FNB; “The outlook for inflation has deteriorated in recent months. This is mainly due to a combination of a higher Rand oil price compared to the beginning of the year, higher maize prices placing upward pressure on food inflation and high increases in administered prices such as utilities. We expect inflation to increase from its current level of 4.6% to above 7% in the first quarter of 2016.

Furthermore, as a small open economy with a large current account deficit, rising US interest rates are likely to place the Rand under pressure and by implication place upward risk on domestic inflation. The SARB has, in previous statements, signaled its concern about this deterioration in the inflation outlook. As a result, the 25 basis point interest rate hike comes as no surprise. We expect more interest rate increases over the next 18 months. However, we expect the magnitude of the current hiking cycle to be a lot less than previous hiking cycles given the fact that it occurs in an environment of very weak economic growth.”

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