Repo rate increase could hurt over-indebted consumers, economy

Was the repo rate increase a good decision for consumers? Increasing the repo rate by 25 basis points to 3.75% might have been a good decision for the hawks on the Monetary Policy Committee of the Reserve Bank who want to keep inflation in check, but economists and consumers agree that it was not a good decision for already over-indebted consumers or the weak South African economy.

Voting turned decidedly hawkish this round, with three members of the MPC choosing to increase and two members opting for an unchanged rate, according to Oxford Economics. The group says the Sarb seemingly wants to avoid running the risk of playing catch-up with inflation and that the increase gives them some breathing room.

The pandemic is associated with job losses, salary cuts and small increases if at all, and has taught consumers to budget carefully, and this increase will affect people who budget to the last cent. The increase now means that someone with a home loan of R1 million will have to fork out an extra R151 to afford a monthly payment of R7 904, up from R7 753.

According to the Consumer Credit Market Report of the National Credit Regulator for the second quarter: secured credit, which is dominated by vehicle finance, increased by R2.23 billion compared to the first quarter and by R22.67 billion compared to the second quarter of 2020 the mortgages debtors book increased by R18.16 billion compared to the first quarter and by R76.48 billion compared to the second quarter of 2020

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