Durban - South African consumers will have to tighten their belts yet again come April as economists have predicted yet another interest rate hike, with some also forecasting a fuel price increase.
In addition, Eskom’s 18.65% tariff increase will come into effect on April 1 for directly supplied or non-municipal tariffs. The power utility said the municipal increase of 18.49% – what municipalities will pay to Eskom – is effective on July 1. Municipalities will have to decide on their own tariff increases.
Also, leading medical aid schemes will also increase their contributions from April 1.
Neil Roets, CEO of Debt Rescue, said they expected a 25 basis points increase to be announced when the Monetary Policy Committee concludes its meeting today.
“The reason being that inflation increased by 0.7% between January and February. The best tool that the South African Reserve Bank (Sarb) has to curb inflation is an interest rate hike. This will discourage excessive borrowing by the consumer which will lead to more debt. Unfortunately, an interest rate hike will lead to the consumer paying more for loans and ultimately lead to higher food costs.”
Roets added that they have noticed a significant rise in the number of consumers seeking debt counselling since the beginning of the year.
“This is expected as unfortunately the interest rate has been going up since last year and this has been wreaking havoc with consumers as some of them simply can’t afford their repayments.”
Dr Ntokozo Nzimande, a senior lecturer in the economics department at the University of Cape Town, said he anticipates an interest rate hike and a fuel price increase.
“The Sarb will definitely hike the interest rate in its next announcement and I think they’ll hike it by 25 basis points. The recent release by Statistics SA on inflation statistics suggests that the Reserve Bank will definitely hike the interest rate. And that would mean since November last year, the interest rate has gone up by 400 basis points (4%).”
Nzimande added that at some point, the Sarb would need to apply the brakes.
“We can’t keep raising the interest rate. If we keep on raising the interest rate, we are sending the economy straight into recession, and we can’t afford to do that.”
Nzimande added that the expected fuel price increase would be a final nail in the coffin for most consumers, particularly the working class.
“It’s going to be very tough for most consumers, everything is going up but salaries remain relatively unchanged.
“The increase in fuel prices would mean that food and transportation costs would rise, forcing Sarb to hike interest rates again mid-year.”
Professor Irrshad Kaseeram, of the University of Zululand’s economics department, said although an interest rate hike was fairly certain he was hopeful of a fuel price decrease.
“The Sarb will raise the repo rate by around 25 basis points which is 0.25%. Inflation being above the 6% cut-off point is one of the main causes. Inflation remains sticky in South Africa as most of our intermediate inputs are imported and there are high and volatile exchange rates.”
Kaseeram added, however, that he was hopeful that fuel prices will decrease marginally.
“I am hopeful for a marginal decrease of around 20 to 30 cents. This could happen if the exchange rate stabilises at R18 to the dollar. The market is highly volatile because of possible recession in the developed world and the crisis in the US banking system.”
Dr Sanele Gumede, an economics lecturer at the University of KwaZulu-Natal, said the interest rate will go up as South Africa does follow trends of the US Federal reserve.
“There was a quarter percentage point increase recently in America and we should expect the Sarb to follow suit.
“It is unfortunate that South Africa’s main tool to cut inflation is an interest rate hike. South Africans will feel the pinch as they will be paying more on their car repayments and mortgage loans. Businesses paying more on their loans will mean that food prices will also increase.
“I do see a small fuel price increase but I don’t see it having a major impact.”