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You Could End Up Paying More For Your Debts

The South African Reserve Bank’s Monetary Policy Committee (MPC) is going to meet at the end of March to discuss whether to raise interest rates. Economists are predicting that an interest rate hike coming.

Economists believe that the recent increase in inflation has basically guaranteed another 25-basis-point rate hike. That increase in the Repo Rate will take the prime lending rate from 10.75% to 11.00%.

Fighting Inflation With Rate Increases

According to the latest inflation figures published by Stats SA, ‘headline’ inflation grew from 6.9% in January to 7.0% in March, (core inflation jumped from 4.9% to 5.2%).

‘Inflation has largely been driven by increases in costs for food’

Inflation has largely been driven by increases in costs for food and non-alcoholic beverages. Inflation for these items is currently sitting at 13.6% (which is the highest level since all the way back in 2009). Despite some relief from recent pressures retailers are still pushing these prices up as they try to make up some of their lost profit (which resulted from strikes and bad weather etc in the recent past).

Rates Could Drop Later This Year...Maybe

Despite the rise in inflation, some economists think that prices are still likely to stabilise later this year.

That’s good news because if they do the SARB will be likely to cut rates at the end of the year.

Still, there are things that could change that outlook for the worse. A lot depends on global markets, the ongoing war in Europe and unpredictable weather patterns, a vulnerable rand and the recent spate of bank collapses worldwide. The rand is under pressure from volatile global risk sentiment (scared investors), and local factors like Eskom’s inability to keep the lights on.

And then we have the looming specter of elections next year which can be really difficult to factor in. Any of these factors could drag the Rand down and push up inflation figures.

Get Ready To Pay More Interest Fees

Right now, it seems that a Repo Rate increase is highly likely because the increase in inflation is a big concern for the SARB Monetary Policy Committee.

Even if things do calm down later in the year the sad truth is that the risks to the inflation outlook are fairly high and this could even result in another interest rate hike in the future. Let’s hope not.

For now, get ready to receive a request from your bank that you pay more towards all of your credit in the weeks ahead.

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