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Warnings the middle class will suffer the brunt of rate hikes

Experts agree the decision to hike rates by 50 basis points is aimed at keeping inflation under control.

new Mandela money
economy,South Africas economy,the rand,Reserve Bank Governor Lesetja Kganyago
Local Business

JOHANNESBURG – Economists have urged consumers to start preparing for even further interest rate hikes this year based on inflation.

Yesterday, South African Reserve Bank Governor Lesetja Kganyago announced that the interest rate will go up by 50 basis points, meaning prime is now at 10.25 percent.

The repo rate stands at 6.75 percent.

Kganyago cited concern about rising inflation as the main reason for his decision.

Experts agree that the decision to hike rates by 50 basis points is aimed at keeping inflation under control.

But economist Isaac Matshego warns this won't be the last increase.

“Should it play out as they expect, they will hike rates further and should we see the rand weakening further, it would mean interest rate increases would be steeper.” 

Economist Anabel Bishop says it's unclear how much it could go up at after the next Monetary Policy Committee meeting.

“Maybe another 25 basis point hike in the next quarter and a 50 basis point hike after that. Sharp upwards trajectory of interest rates where a there is 1 percent factored into the markets.” 

Meanwhile, the rand has reacted positively to the announcement gaining ground for the first time in several weeks.

LISTEN: Experts weigh in on the interest rate hike.  

IMPORTERS HAIL REPO RATES

The decision to hike the repo rate by has been has been welcomed by those bringing goods into the country as importers are looking for a stronger currency.  

The rand strengthened immediately after the announcement by Kganyago.

Emerging market currencies, including the rand, have been under intense pressure over the past few months due to a number of international factors including rates decisions by the US Federal Reserve and data from China.

The Brazilian rael and Russian ruble are among currencies that have lost major value.

But, the axing of Finance Minister Nhlanhla Nene dealt a severe blow to the already ailing rand.

Many South Africans in debt will now battle to pay their bills but it's hoped that the higher repo rate will have positive implications for the rand and ultimately inflation.

ECONOMISTS PRAISE RESERVE BANK’S DECISION TO INCREASE INTEREST RATE

Economists praised the Reserve Bank's decision to increase rates, saying while pressure mounts on consumers there may be a silver lining in the future.

Economist Lumkile Mondi says raising the interest rate shows that the bank is independent from government.

“It was a fantastic decision to our international investors that the institution remains intact, independent and we will execute its mandate for better or for worse.”

He says a hike also benefits the poor to some extent because food prices won't increase as much, while the rich will still benefit from a higher pay out on their investments.

Matshego argues it's clear that the potential economic growth rate was also considered.

“Moving forward to 2017, we expect growth to pick up to around 1.6 percent and that I would say that is the silver lining.” 

But many agree that the middle class will be hit the hardest with bond and car repayments going up from today.

(Edited by Refilwe Pitjeng)

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