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The decision by the South African Reserve Bank to raise the repo rate will be hard-felt by consumers, most of whom are already struggling to make ends meet, a financial service provider said on Friday.
South Africa's central bank on Thursday raised the benchmark repo rate by 25 basis points from 6.5 percent to 6.75 percent, despite weak economic growth, saying delaying the adjustment could cause inflation expectations to become entrenched at higher levels.
The repo rate is the benchmark interest rate at which the central bank lends money to commercial banks. Changes in the repo rate affect the prime rate at which commercial banks in turn lend to consumers, which has also gone up to 10.25 percent.
“The announcement should already caution consumers on overspending ahead of the festive season," said Danny Zandamela, chief executive at Ithala, a financial service and credit provider based in KwaZulu-Natal.
"After working hard all year to keep your finances afloat and credit rating intact, it is advisable to continue exercising financial discipline as times get tougher."
Zandamela said over-indebted consumers would bear the brunt of the hike as they grappled with added expenses and less disposable income.
Reserve Bank Governor Lesetja Kganyago told a news conference on Thursday that the monetary authority was looking at four 25 basis points hikes in interest rates by the end of 2020. This would bring the repo rate to 7.5 percent.
Zandamela said it was important to distinguish between “needs” and “wants and while it was important to reward oneself, this must be done in moderation so as not to offset good financial standing.