Are Rates About To Go Up Again?
Is A Rate Increase Coming?
Is a repo rate hike coming?
Well, some experts reckon that the South African Reserve Bank (SARB) Monetary Policy Committee might raise the repo rate again.
One or two experts are optimistic that there might not be a rate hike given how the Fed in the USA didn’t push up their rate and the Rand has recently made some gains against the Dollar.
There are also some who say that a 50 Basis point increase will definitely help accomplish what the SARB MPC are after (curtailing inflation) but by far the majority of experts seem to be saying that consumers should prepare for a middle of the road 25 basis point increase which would take the rate to 8.50%.
‘the majority of experts seem to be saying that consumers should prepare for a … 25 basis point increase’
At present the SARB MPC has rolled out ten consecutive hike rates since November 2021 each between 25 to 75 basis points) adding up to a whopping 475 basis points of increases (pushing the Repo rate up by 4.75%).
This has been hard to deal for those who are cash strapped.
The Repo Rate
What is the Repo Rate?
It is good to think of the Reserve Bank as the big bank for all other banks. When banks need some extra money to do their thing, they can borrow from the Reserve Bank.
The repo rate is like the interest rate on their loans. So, when the Reserve Bank wants to control how fast prices go up (inflation), they can raise this interest rate to the banks. It’s like putting speed bumps on the road to slow things down.
The banks, in turn, link their rate (that they charge clients) to this Repo Rate and their are limits on what they are allowed to charge based on this rate.
Why Do the SARB push up the Repo Rate?
When the Reserve Bank increases the repo rate, it helps to put the brakes on inflation.
Inflation is the rise in prices of things we buy, and it’s important to keep it in check or you can develop a run away situation such as been seen in Zimbabwe and Turkey in the recent past.
Businesses who can’t afford price increases begin to push up their prices which places clients under pressure to earn more. So, those clients begin to charge more for the work they do and it can begin to spiral out of control. As can the use of credit.
Higher rates for credit tend to make people not take on more credit and to focus on repaying what they have already loaned.
Right now, inflation in South Africa is sitting just over 6%, (a tiny bit higher than the target range of 3 – 6% that the SARB MPC have in mind). So, raising the repo rate can be a way to keep things under control and make sure prices don’t go crazy.
We Will Find Out Soon
So, what’s going to happen next? We’ll find out pretty soon.
The SARB MPC have a meeting planned for July 20th, and that’s when they’ll announce whether they’ll hike up the repo rate or keep it the same.
But brace yourself, we are pretty likely to see the Repo Rate go up and for linked credit rates to increase as a result.
Consumers were relieved after the MPC announced on July 20th that there would not be a rate hike for the moment.
Though the MPC were split on the decision and a 25 basis point increase might have happened, it was ultimately decided to follow the lead of the US Fed and leave rates stable this time.