Repo rate increase set to hit consumers hard

Friday may have been pay day for some and those lucky enough to have a job, but we all know how quickly that money disappears in an attempt to settle our bills and get through the month.

This week’s decision to raise the repo rate again – an increase by 25 basis points to 4.25% – will hit consumers hard. It was predicted, but those already struggling to keep their heads above water will no doubt feel the pressure to cope with their bond repayments, among other expenses, especially since more increases are expected in the coming months.

Russia’s invasion of Ukraine is being felt worldwide and South Africa is no different. The cost of food, fuel, oil and electricity is already hurting our pockets and economists warn this will only increase significantly over the next three months.

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It’s believed the repo rate will be 5% by the end of the year. South African Reserve Bank (Sarb) governor Lesetja Kganyago said: “While food prices will stay high, fuel price inflation should ease in 2023, helping headline inflation to fall to 4.6%, despite rising core inflation. Global financial conditions are more volatile at present and with higher than expected inflation, [this] has pushed major central banks to start the normalisation of global policy rates.”

The war in Ukraine will reduce global economic growth and contribute to higher inflation. Global trade will continue to be disrupted.

Oxford Economics said: “The abrupt increase in domestic price pressures prompted us to bring our 2022 interest rate forecast forward. Specifically, we expect the Sarb will lift the repo rate by another 50 basis points in the second quarter and a 25 basis points increase is slated for the third quarter, which will see the repo rate end the year at five percent.”

With higher increases ahead, it’s time to tighten the belts even further – something South Africans have become all too familiar with.