Consumers must remember not to buy on credit when spending on Black Friday as the SA Reserve Bank’s monetary policy committee hiked the repo rate by 75 basis points today. That means the more you borrow, the more interest you pay.
This warning comes from independent economist Prof. Bonke Dumisa. He was expecting a 75 basis point hike, but after hearing that inflation had picked up again after it was thought to have peaked in July, he wondered if the repo rate could be raised by 100 basis points.
This was the sixth consecutive bi-monthly increase in the repo rate, which stands at 7% after today’s increase. Three committee members voted for a 75 basis point increase, two for 50 basis points. At the September meeting, two members would have preferred a fairly aggressive 100 basis point hike.
Ethel Nyembe, Head of Card and Payments at Standard Bank Group, agrees with Dumisa, saying it’s important not to get carried away and buy beyond your means.
“We are currently in a rising interest rate environment, with rates being adjusted up again today, meaning the cost of debt servicing will increase.”
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The continued interest in Black Friday, but the repo rate will play a role
She says the bank expects continued consumer interest on Black Friday, but transaction volume may be impacted by the recent rate hike, savvy consumers, rising consumer costs and a growing trend of extended Black Friday special offers over a one-week and one-month period.
Prof. Jannie Rossouw, visiting professor at Wits Business School, on the other hand, expected 50 basis points. He also attributes the higher rise to the higher rate of inflation, warning that inflation is likely to stay high for longer and consumers need to plan for it.
“We have to accept that inflation is an international problem at the moment, but we can be glad that the Sarb didn’t wait as long as central banks in developed countries like the US and UK thought inflation wouldn’t stay as high long.”
He adds that this isn’t all bad news: Those with savings are now earning more interest.
Carmen Nel, chief economist at Matrix Fund Managers, says that with market prices split between 50 and 75 basis points ahead of the session, the reaction of the rand and rates following the announcement was minimal, although the rand traded somewhat weakly relative to the level the US Dollar Index (DXY).
“At 7.00%, the nominal repo rate is steady state, but with inflation well above target, the real policy rate is seen as accommodative. The MPC views the current monetary policy stance as supportive of the economy and credit growth.”
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Avoiding a return to stagflationary conditions
The increase was in line with the company’s forecast, according to Jeff Schultz, senior economist at BNP Paribas South Africa.
“We caution against reading too much into the ‘close’ nature of this week’s decision. From our point of view, the statement was clearly hawkish.”
He says Sarb Governor Lesetya Kganyago’s comments in the post-decision press conference are perhaps the most telling for a central bank that remains steadfast in its goal of avoiding a return to stagflationary conditions.
“The governor made it clear that the central bank would rather take the risk of over-tightening and bring inflation under control than allow inflation to run hot longer and ultimately hurt growth over the long term. Interestingly, Kganyago made the point we recently argued that South Africa’s very low potential growth means it doesn’t take much growth to close the output gap next year and this could pose further upside risk to the inflation outlook.”
Schultz says that while the rate hike decision opens the door for a 50 basis point rate hike in January, until then it will boil down to “data dependency” – further upward inflation, a weaker rand (Sarb now has a USDZAR starting point of 17, 76 versus its Q3 starting point of 16.91) and tighter global financial conditions could slightly challenge our current (already ahead of consensus) forecast of a 7.50% final rate.
“We maintain our call for a final 50 basis point hike in January, but maintain that there are upside risks to our end rate assumption beyond January next year, even if the central bank is indeed able to raise on January 26th Switching down 50 basis points amid a steadily slowing growth environment.”
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