THE 50-basis-point interest rate hike implemented by the Reserve Bank’s monetary policy committee (MPC) on Wednesday will have a moderate effect on consumer spending, credit uptake and economic growth, according to economists. The MPC raised interest rates on concerns of rising inflation and continued rand weakness, which made the prices of important inputs such as petrol more expensive. The Bank revised its economic growth forecast downwards to 2.8% for this year from an earlier forecast of 3%. The growth outlook for next year was also reduced slightly to 3.3% from 3.4%. Growth is still expected to remain below estimated potential output of between 3% and 3.5%, the MPC statement read. MPC member Rashad Cassim said he did not think a 50-basis-point rate increase would negatively affect economic growth. A 50-basis-point increase in the repo rate won’t have a fundamental effect on growth. Obviously if there is a series of interest rate hikes, then it will choke growth, Mr Cassim said. The repo rate hike means the interest rate at which commercial banks lend to consumers — the prime rate — increases from 8.5% to 9%. FNB household sector strategist John Loos said disposable incomes of consumers would be negatively affected but not significantly. He estimated that those with a R600,000 home loan would pay R191 more from next month, while those with a R1m home loan would see their bond repayments rise by R319. We’ll also see a mild rise in consumer bad debt because of the interest rate hike, Mr Loos said. National Credit Regulator figures show that many consumers are still struggling to repay their debt. The number of consumers with impaired records — accounts that have not been paid for three months or more — increased in the third quarter to 9.76-million from 9.69-million in the previous quarter. This number could increase given that unemployment remains a challenge in the country. The MPC said continued job losses in the private sector remained a concern. It said it had taken into account that certain sectors of the economy, such as consumers and businesses, were under pressure from increasing costs. It said while it was concerned, its main mandate of keeping inflation in check would take priority. Nomura International emerging markets economist Peter Attard Montalto said it was not the MPC’s job to address structural growth problems, and that it could hike rates even though it expected economic growth to be weak. Households are under pressure from rising petrol prices, higher electricity costs and indebtedness. Growth in spending by households moderated to 2.3% in the third quarter of last year from 2.8% in the second quarter. The MPC said in its statement household spending would likely remain relatively constrained by disappointing employment growth and a modest rise in credit extension. South Africa’s National Development Plan suggests the economy must grow above 5% every year if 11-million jobs are to be created by 2030.
Posted on: Sat, 01 Feb 2014 10:42:39 +0000
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