SARB increases the repo rate by 0.75%

It is official, R1 000 000 worth of debt will now cost you approximately R470* more per month compared to last month. The South African Reserve Bank announced yesterday afternoon that they will be increasing the repo rate by 0.75%, which means that the prime lending rate in South Africa is now 9%, and this will hit consumers' pockets at a time when we can barely afford it.

But to be honest, we should have been expecting this as we exit the restrictions of Covid-19 and inflation doesn't seem to be slowing down. This increase will hopefully help our situation, but we still have a small way to go before we hit pre-pandemic levels.

On further investigation into the matter of interest rates, the fixed rates were not all that favourable for anything longer than 3 years. This showed that the markets were never expecting the low interest rates to be a long-term thing and rates were always expected to rise as some sort of normality resumed.

So, we cannot really be shocked by the MPC's decision to increase rates again. In fact, we have been told that 3 out of 5 members voted for the 0.75% increase. While another member voted for a 0.5% increase, and the last for a full 1% increase!

Looking at indicative fixed interest rates today, things have improved marginally but fixes are still not looking all that appealing, which normally shows that the market is expecting more interest rate hikes, especially with the way the MPC voted.

So, what does it all mean? That predicting interest rates has, and always will be crystal ball stuff. The only thought process that may mean something is whether you believe rates are going to go back up to 15% or worse, and you want to remove that risk from your financial position. And whether you want to sleep soundly at night and pay a premium now to avoid having your rates reach those levels. But this does come down to a very personal preference.

A 9% prime lending rate is still relatively low when looking at the last 15 years, so it isn't all doom and gloom. Banks should also be more motivated to lend as their margins improve, and I do believe there is still a lot of opportunity in this country. We may just need to look a bit harder and a bit more scrupulously.

Source: Fever Three Finance

Writer: Grant Gibson