Consumers that have borrowed money will be hit hard by the latest announcement from the South African Reserve Bank (Sarb) that it will hike rates by 25 basis points believes Ian Wason CEO of DebtBusters, South Africa’s largest debt counsellor. This is the first time that the SARB has increased the repo rate since hiking it by 25 basis points in July 2014.
16 March 2016
The dangers of yet another repo rate hike is on everyone’s minds as the Rand breached the R16/$-mark yesterday. DebtBusters CEO Ian Wason says, “Current trends are indicative of a further rate hike tomorrow when the South African Reserve Bank (Sarb) meets, which will take the repo rate up to and possibly beyond the 7% mark”.
This increase will knock low income earners earning less than R5 000 per month into an even worse financial situation than they are already in. “Our figures show that it’s often the poor that are hardest hit by debt. Low income earners have 80%+ of their debt as unsecured, expensive debt. Our latest stats show that these consumers required 146% of their net income to pay their monthly debt repayments (before debt counselling),” says Wason.
A repo rate hike always results in an increased cost of borrowing for consumers, as banks immediately increase the cost of home loans, vehicle finance, student loans, personal loans, store cards, credit cards and any other type of credit or loan that is linked to the repo rate.
“That’s not the worst of it though,” says Wason. “The timing of this rate hike is extremely bad for low income earners for a number of reasons. Firstly, consider that the Debt to income ratio among these consumers is already too high, leaving little or no money for living expenses. Secondly, review how much these consumers have already had to endure this year, two consecutive hikes in the repo rate on the back of Christmas spending and food inflation caused by the worst drought SA has seen in over a decade. Now, add the final blow, the knock on effect of increases in the petrol levy (1 April), Eskom’s 9.4% increase in electricity (1 April) and another repo rate increase. All which will result in further increases in the cost of food, transport and rental as stores, transport operators and landlords try to pass along the cost of their increased expenses onto consumers.”
Consumer price index (CPI) figures reveal that so far this year, South Africans have had to absorb on average a 6.2 percent year-on-year increase in electricity, food and transport. The latest Pietermaritzburg Agency for Social Development (Pacsa) report reveals that since January, the price of a 25kg bag of staple food for poor families – maize meal – has increased by 12%.
“I would urge consumers that are struggling with debt to seek help from an accredited debt counsellor, like DebtBusters or Consumer Debt Help, to help to restructure their credit agreements and free up some money for living expenses,” advised Wason.