Consumers should be wary of January as we head into the spending season after interest rate decision

Consumers in South Africa can look ahead to the festive season without having to adjust their budgets too much after the South African Reserve Bank (SARB) announced earlier this week that interest rates would remain the same.

This follows the Monetary Policy Committee’s (MPC) vote which was unanimous to keep the rate unchanged.

This means the repo rate is 8.25%, while the prime lending rate stays at 11.75% in South Africa.

This decision follows the trend from the MPC’s previous meeting held in September where the rate was also left unchanged.

FNB CEO Jacques Celliers said consumers should keep an eye on their financial needs in January 2024 as the country approaches the higher spending period in December.

Celliers said, “While many factors indicated the possibility of a rate hike, the Reserve Bank’s decision to hold their key lending rate provides some relief after a challenging year. However, the Bank’s decision aligns with traditionally high spending during Black Friday and the holiday season.”

“I urge consumers to keep an eye on their financial needs in January next year as we go into this higher spending period. With inflation now stabilising and even declining around the world, consumers and businesses should be aware that salary adjustments will follow a similar pattern. The prospect of lower rates in 2024 should not generate a strong reaction from borrowers,” Celliers further added.

Meanwhile, Neil Roets, CEO of Debt Rescue said that the rate hold elicited widespread relief from businesses and consumers across the country, who have reached the end of their tether financially.

This announcement is in line with analysts’ expectations and means the interest rate will hold steady at 8.25% until January 2024, with economists predicting a much-needed 25 basis points cut to 8.00% in May 2024.

He said that with the relentless increases in food prices, a growing number of people are resorting to credit facilities to meet their monthly grocery bill requirements.

“This is a dangerous trend and definitely not a long-term solution,” he said.

Roets further said that the string of increasing interest rate hikes earlier in the year led to steady and steep increases in loan instalments, and this has resulted in owners defaulting on vehicle and home repayments – with new data showing that South Africans are at a point where they are forced to give up their homes.

“Distressed house sales are on the rise in South Africa, as the majority of sellers are downgrading due to financial pressure,” he said.

Data shows that those taking home R35,000 or more a month have the highest monthly debt repayment ratio – losing a whopping two-thirds (67%) of their income on debt repayments – with bond repayments now comprising 42% of the debt of those who earn over R35,000 or more.

Nedbank’s latest NedFinHealth Monitor shows that 69% of South Africans cannot pay all their bills on time, and 33% said they had not been able to pay their home loan in the past 12 months.

Roets says, in light of this, he is deeply concerned that we will likely see an even higher number of defaults in the months to come, including those on bank loans and credit facilities.

“My advice to those who find themselves in a debt trap is to seek help from a registered debt counsellor who can assist you to manage your financial predicament. When you are in a better position financially, settle your debt sooner by paying more towards your debt and exit the debt review process quicker. This has been a very successful solution for thousands of consumers who are plagued by over-indebtedness,” Roets said.

Earlier this week, it was announced that surging egg prices was one factor that led to a surprise uptick in consumer price inflation (CPI) to 5.9% in October.

Statistics South Africa (StatsSA) said that the annual headline CPI quickened more than expected in October, rising to 5.9% from 5.4% in September and well above the Bloomberg market consensus of 5.6%.

This was the highest inflation rate in five months since 6.3% reached in May, and well above market estimates of 5.5%, verging on the upper limit of the SARB’s target range of 3-6%.

Frank Blackmore, lead economist at KPMG told Business Report that while inflation remains sensitive to shocks such as oil prices, food price inflation remained relatively the same.

Blackmore said, “The risk to the outlook remains on the upside and includes things such as oil and food prices as well as the El Nino phenomenon. Electricity and logistics issues also impact prices domestically, average salary increases and we have seen large increases in public wages this year. All of these things tend to keep inflation higher for longer. These things still are in line with the bank’s forecast for inflation for 2023 to stay just below the 6% level which is why they felt it necessary not to change the repo rate at this point.

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