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Rate Hike

The Repo Rate now sits at 7% after yet another increase in November

Banks lend consumers money and charge them interest on that money*.

They are only allowed to charge a set amount of interest for different types of accounts. The rate they can charge their clients is limited by the National Credit Act and regulations and is linked to the Repo Rate.

When the rate goes up, those who owe the banks and other credit providers money have to pay more interest on their debts. When it comes down, consumers get to pay less towards the interest portion of their loans.

This is why the recent increase makes life hard for those with large or many debts.

 

Who Sets The Rate?

This rate is set by the SA Reserve Bank. The SARB have a Monetary Policy Committee who meet and argue over how high or low the rate should be and then they announce if it is staying the same or changing. They do this several times a year.

November 2022 is one of those times and the MPC have decided to continue the upwards trend of raising the rates this year.

There was a little debate about whether it shoucl go up 50 basis points or more and it ended up with a 75 basis points increase taking the Repo Rate to 7% now.

 

Why Make It Higher?

The rate is not only increase so the SARB can make more money. There are other reasons.

The increase is designed to drive consumer (and bank) behaviour and offset inflation and continue to deal with the effects of the war in Ukraine and global sanctions vs Russia (by most countries) and the resultant energy crisis and supply chain issues.

*Technically the bank lends you the money that you promise to later pay them back rather than money they actually have in the bank which is just…well, its weird.