Rate hike raises pressure on South Africans as economist warns of recession risk - IOL

South African households face higher debt repayments after the Reserve Bank raised the repo rate to 7.25%, with Debt Rescue warning that consumers have little room left in their budgets.

South Africans already battling high living costs and debt repayments have been dealt another financial blow after the South African Reserve Bank (SARB) raised interest rates.

The Reserve Bank’s Monetary Policy Committee unanimously increased the repo rate by 25 basis points to 7.25%, effective from September 25, as it moved to contain renewed inflationary pressure.

The move means higher borrowing costs for consumers with variable-rate debt, including home loans, vehicle finance, overdrafts and credit cards.

Economist Dawie Roodt warned that the country could already be heading into a recession.

Roodt said the hike would be particularly painful for indebted South Africans at a time when economic growth was already extremely weak.

"This increase in interest rates is going to be quite tough on the average citizen in South Africa, especially if you owe money,” Roodt said.

“Because as it is, the economy is hardly growing. In fact, it's possible that we could be in a recession, and this will put additional financial pressure on individuals, mostly.”

He said the rate increase could itself contribute to a further slowdown in the economy.

Economist Ulrich Joubert said the impact would differ from household to household depending on the level of debt.

“It depends on whether you have a housing loan, a car loan, an overdraft, a credit card that is in debt,” Joubert said.

“In the case where you have these loans, car, house, whatever loans, overdrafts then you're going to pay more.”

He said the increase could mean anything from around R100 to R500 or even R1,000 more a month depending on the size of the loan.

Stop City of Cape Town founder Sandra Dickson said working families were already under severe financial strain.

“For working families paying off a home, higher interest rates mean higher monthly bond repayments, while vehicle finance, overdrafts and other variable-rate debt also become more expensive,” Dickson said.

“This adds to the general financial pressure working-class families already endure.

“Coupled to the July municipal bills increases, working-class families are now stretched to breaking point.”

The rate hike also comes amid mounting concern over fuel prices.

Joubert warned that motorists could face significant increases in October, saying petrol had recently shown an under-recovery of around R2.88 a litre, while diesel was under pressure of around R3 a litre.

“You're going to pay at least R2.88 more in October for petrol, and I think it could be closer to R3,” he said.

“If I look at the diesel price, the better quality diesel price, it's already R3 under-recovery, so you will at least pay R3 a litre more for diesel from October onwards.”

He said the impact would not stop at the pumps, with higher transport costs likely to feed through to groceries and other goods.

Dickson said the combination of higher interest rates, municipal costs and expected fuel increases would leave households with even less disposable income.

“This comes at a particularly difficult time, with households already under pressure and steep fuel-price increases expected, which will push up transport costs and add further pressure to the cost of food and other essentials.

“For many working households, this means less money left at the end of the month and even tighter household budgets.”