‘This is just not good for us’ – experts react to repo rate hike

The South African Reserve Bank’s Monetary Policy Committee has announced a repo rate hike of 50 basis points – 25 basis points above what economists across the country initially predicted.

In total, the repo rate has lifted by a cumulative 425 basis points over nine meetings.

But this has been quite the surprise and shock for financial institutions who are now looking at ways to support their customers with advice-led financial solutions to help them weather the financial storms that are about to follow.

Mamello Matikinca-Ngwenya – FNB Chief Economist

FNB Chief Economist, Mamello Matikinca-Ngwenya, said that the MPC’s decision to lift the policy rate by 50 basis points, to 7.75%, was higher than the consensus expectation for a 25-basis point hike.

“The repo rate has been lifted by 425 basis points over nine meetings, from an ultra-low of 3.5% in November 2021. Therefore, the MPC has managed to undo the accommodation provided during the lockdowns while also aiming at guiding inflation expectations back to their preferred 4.5% anchor,” she said.

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“Ahead of this decision, the consensus view was that today’s move would mark the end of the hiking cycle, but the road ahead is precarious as a lift in the cost of doing business and a weaker Rand-Dollar exchange rate should support stubborn inflation in SA. Nevertheless, interest rates are likely to remain elevated over the medium term, as escalated geopolitical tensions, the cleaner energy drive as well as adverse weather patterns keep global inflation above pre-pandemic levels,” she concluded.

Frank Blackmore – KPMG Lead Economist

KPMG Lead Economist, Frank Blackmore, shared the same sentiment. “The increase in the repo rate was not unexpected given that the most recent inflation read (February 2023) came in at 7% which is still well above the midpoint of the target range of 3% to 6% due mainly to increases in energy, transport and food costs. 

“It was the size of the increase that was somewhat unexpected, with the market generally predicting a 25bps increase, however, it appears reasonable given the upwardly revised inflation forecast of 6% for 2023 from the previous 5.4% made by the Sarb.

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“We expect the Sarb is at or approaching the peak of their monetary policy tightening cycle and that more significant decreases in inflation to take place over the second part of the year when base effects are more likely to come into effect, conditional on no further shocks to underlying food and energy prices. Depending on the size and speed of this reduction in inflation over the rest of this year we could even experience a decrease in interest rates by the end of the year,” he said.

Tertia Jacobs – Treasury Economist at Investec

Tertia Jacobs, Treasury Economist at Investec, felt just as surprised by the announcement. “It was a shock but when you look at the Reserve Bank’s inflation forecast for this year, which was raised from 5.4% to 6%, it justifies the concern that they have. They have also revised the food inflation forecast higher to an average of 9.9% from 7.3%. And a big dynamic is the impact of load shedding’s contribution to inflation.

“The Reserve Bank estimates that it’s approximately half a percent.

“In line with this, companies will undertake more fixed investment, they’re spending more on diesel and all of that keeps price pressures quite elevated. The concern is that these costs will also be passed through, along with the other major factor being inflation expectations that remain quite elevated.

“These were the key drivers for this MPC decision – with the domestic dynamics being the major contributing factors,” she said.

Hayley Parry – Money Coach and Facilitator at 1Life’s Truth About Money

Meanwhile, Hayley Parry, Money Coach and Facilitator at 1Life’s Truth About Money, says that the shock is probably the most negative we could expect.

“Not good news for us consumers I’m afraid. Reserve Bank Governor, Lesetja Kganyago, has increased the lending rate by 50bp – that means that our prime interest rate is now 11.25% – that is the highest level it has been since 2009, and it is the ninth consecutive increase we have had since November 2021.

“He says that inflation pressure remains a risk and that load shedding is pushing up the cost of living, and that is why this increase was double what economists were predicting. So what does that mean for your and my bank account?

“Well, to give you an example – If you were paying off a 2 million rand home loan, as of the end of March your interest your repayment would have increased by R680 this month, and since the interest rates increased cycle began by just over R5500 more, so it is not good news if you’re servicing debt.

“If you have got any money at the moment, which you can use to pay down your debt, now would be a good time to do that, because cost of debt is continuing to increase,” she advised.