The South African Reserve Bank (SARB)’s Monetary Policy Committee (MPC) announced a further hike of 25 basis points in the repo rate to a level of 7% per annum. Commercial banks are to raise their prime lending and variable mortgage interest base rates for extending credit to the public and the business sector by the same magnitude to 10.5% per annum.
Interest rates have been hiked by a cumulative 200 basis points since early 2014 and are back at levels last seen in early 2010. The latest interest rate hike came against the background of continued upward pressure on inflation as a result of trends in and the outlook for major inflation drivers, such as the exchange rate, food prices, electricity tariffs, and oil and fuel prices.
Further hikes in lending rates are forecast for the rest of 2016, which will cause debt repayments to increase, contributing to additional financial strain on consumers. Banks are to continue to monitor economic and consumer-related trends regarding their risk appetite and lending criteria.