Fri, 17 Aug 2007 (from iAfrica.com)
What does the 50 basis point interest rate hike mean for you? Well, if you have any form of debt, it’s not good — with consumers needing to find more money to service the same level of debt.
Following the 0.5 percent hike in interest rates, the repo rate has climbed to 10 percent, while the prime rate has been increased to 13.5 percent.
“Strong inflationary pressures coupled with the three percent hike in interest rates over the last 14 months is adding thousands of rands to the cost of living for the average consumer,” says Ridwan Kajee, executive director of Oasis Asset Management.
Monthly repayments more
In practical terms, it means that the monthly repayment on a mortgage bond of R1-million will increase by R2090 a month compared to what you were paying before the rates hikes began in June 2006.
Over the same period, the monthly repayments on a R100 000 car have risen by R209, while the cost to service credit card debt of R50 000 (using conventional assumptions) is R14 per month more.
“These increases combined mean that consumers now need to find R2 300 more per month to service the same level of debt than they did 14 months ago,” says Kajee.
Real pressure
“When you couple this with an eight percent increase in the price of petrol over the period and continuing inflationary pressure on transport and food inflation, you get a situation where consumers with high debt levels are suddenly finding themselves under real pressure.”
The implementation of the National Credit Act in June should have a positive effect on consumers who were possibly being granted access to credit too freely.
“But South Africans also need to take responsibility for their own spending habits. It is important that consumers live within their budgets and don’t fall into the debt trap. One of the best investments that can be made is to repay existing debt,” he says.