Consumers are in for another ‘vrot’ financial year

26 January 2015

Inflation rate increases & repo rate rises forecasted for 2015

Recent news reports have stated that The SA Reserve Bank (SARB) could hike its key repo rate by 1.5 percent by the end of 2016. Despite the existing inflation relief, kicking off 2015 to a good start, the inflation rates are likely to quickly increase as 2015 progresses, forcing SARB to start another rate hiking cycle. Predictions from various economists noted in the news earlier this week, have indicated that July will lead a 25 basis point increase in the repo rate, and by a total of 0.75% this year.

DebtBusters Marketing Manager Kelli Knutsen warns, “Consumers need to be prepared for the rate hike predictions that 2015 holds. We were hoping to see rate cuts in 2015 by The Reserve Bank, as the number of defaults on homeloans and vehicles is still incredibly high, not to mention the rate of unsecured lending.”

South Africa’s Household sector is deemed to be the most vulnerable to interest rate hikes, as although the Household Debt-to-Disposable Income ratio has declined and settled at an average of 78.4% in 2014, the improvements are too slight to make a difference to those already in dire financial situations.

Kelli Knutsen states, “The rate increases will affect the South African consumers with large amounts of debt the most, as the interest on these debts will increase putting more pressure on salaries.”

Kelli Knutsen goes on to say, “Home loans, car finance loans, personal loans and other interest bearing debts will also increase as the prime rate increases. We have noticed a considerable rise in the amount of low earning income consumers turning to pay day loans for help when financial times get tough and on the verge of defaulting on their asset repayments.”

“Recent client statistics released by DebtBusters have indicated that consumers earning less than R10, 000 per month have been hit the hardest by micro lenders as they have a negative disposable income before they go under debt counseling and have an overall debt-to-gross income ratio of 115%. Interest rates on payday loans are extremely high, which occupy the majority of the type of credit leant to DebtBusters clients” says Knutsen.

Although consumers have experienced a considerable reprieve from the decrease in petrol prices, food costs have not followed suit.

Knutsen says, “Before signing up for debt counselling, when times get tough, we have noticed that DebtBusters clients cut down on food costs before other things. When they approach DebtBusters, the margin to decrease their food allowance in their budget has already reached its limit. 2015 calls for all round inflationary increases, consumers need to make arrangements for medical aid increases, school fee rises, fuel increases and other cost surges.”

“Consumer debt levels in South Africa are still too high and we need repo rate reductions in 2015, so that the debt levels can be reduced to more manageable amounts,” says Knusten.

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