WATCH YOUR SPENDING: STANDARD BANK
“Consumers are urged to look at their income and debt portfolios and adjust their consumption patterns,” Standard Bank’s head of personal banking Sugendhree Reddy said in a statement.
People were advised to begin reducing short-term debt, add extra to their savings accounts and, if possible, add more to their home loan account.
“It is not all doom and gloom. Consumers can also take advantage of savings rates that are likely to increase as a consequence of the repo rate hike,” Reddy said.
The bank would increase its lending rates by 0.5 percent for new and existing clients from January 30.
The repo rate is the rate at which the SARB lends money to commercial banks. The hike in the repo rate, and subsequent increase in bank lending rates to nine percent, would make a R300,000 home loan cost an extra R96 month.
A R500,000 home loan would cost an extra R160 a month, and a R750,000 loan would cost R240 a month more. A R1 million would cost an extra R319 a month, while a R2 million home loan would cost an extra R638 a month.
RATE HIKE BRINGS CAUTION: FNB
Consumers will become more cautious after the SA Reserve Bank (SARB) pushed up its repo rate to 5.5 percent on Wednesday, First National Bank (FNB) said on Wednesday.
It said the new repo rate — at which SARB lends money to commercial banks — would see FNB increasing its prime lending rate to nine percent.
CEO Jacques Celliers said the last rate rise was in June 2008, which had meant almost five years of falling and stable rates.
“Many of our peer countries have already hiked rates in expectation of further reductions in the US Federal Reserve QE (quantitative easing) programme,” he said.
“They have done so to ensure domestic economic and currency stability. We encourage our consumers to set aside additional amounts in their budgets before mortgage and other payments fall due at the end of the month.”
The rate hike was positive news for investors dependant on interest income, as they had struggled under declining and stable rates in recent years, he said.
FNB chief economist Sizwe Nxedlana said the SARB raised the rate to contain rising inflation risks. This was despite fragile economic growth, muted core inflation and inflation expectations remaining reasonably well behaved.
“The risks to inflation facing the SARB stem from the weak rand. Sustained rand weakness could place significant upward pressure on inflation and raise inflation expectations,” he said.
“By raising rates today [Wednesday], the SARB has chosen to reduce inflation risks pre-emptively in order to protect long-term price stability and household purchasing power.”
Households should budget wisely in anticipation of further interest rate increases, he said.
FNB property sector strategist John Loos said the raising of the repo rate would keep market behaviour healthy.
“The impact should be seen as ‘negative’ from a short term consumer point of view,” he said in a statement.
“As the positive impact of the big interest rate cuts has been gradually wearing off through 2012/13, both real household sector disposable income growth and real consumption expenditure growth have been slowing.”
The repo rate increase would negatively affect the growth of demand, and as a result have a restrictive effect on house price growth.
“All bets are off regarding any noticeable rise in house price growth compared to recent levels, and single-digit price growth is expected to remain a characteristic through 2014,” he said.
“The new repo rate level, which leaves the prime rate at nine percent, slightly above house price growth, does not promote unhealthy short term speculative buying on a large scale.”
This was because it was not easy to borrow money at prevailing rates and make quick capital gains.
“From a point of view of preventing major speculative activity in the residential market therefore, this level of interest rates would appear appropriate,” he said.