Rate Hike Will Severely Affect the Poor

The Reserve Bank has recently announced the increase of 25 basis points in the  repo rate. This could push food inflation up to ten percent with unpleasant results for the deeply indebted and poor South Africans.

Neil Roets‚ Chief Executive Officer (CEO) of one of the largest debt management companies in South Africa‚ Debt Rescue, says "the combination of the severe drought in prime food producing areas coupled to the increase in the interest rate and the rapidly weakening of the rand would have dire consequences for the poor."

He says a good indicator of the state of the economy is the number of people who stack up debt they can’t repay and who are then compelled to seek help from debt counselling companies such as Debt Rescue. During the past six months we have shown higher growth rates since the inception of the company. It is patently obvious that the few fuel decreases we’ve had have been vastly overshadowed by the massively high unemployment rate and the overall increase in the cost of living.

Roets continues to explain that although a quarter of a percentage point increase in the interest rate banks pay to the reserve bank to borrow money does not sound like much‚ it comes on the bank of a whole slew of other price increases, notably food and imported commodities, that have been negatively impacted by the drop in the value of the rand against all major currencies.

Independent economist Dawie Roodt advises consumers to try reduce their debt load by paying off existing debt especially on items such as credit card debt which carried high interest rates.

“Deeply indebted consumers are incredibly vulnerable at the moment because of issues such as the weakening rand which is going to translate into increased prices for all imported goods. It will also affect locally produced goods such as foodstuffs where many of the inputs such as fuel used by farmers is imported and has to be paid for in US dollars," Roodt adds.

He notes that the fact that total consumer debt now stood at close to R1.6-trillion (according to the latest figures released by the Reserve Bank) showed that consumers were having a very hard time.

Roets said figures released by the National Credit Regulator and Statistics South Africa stated that the majority of indebted consumers already owed 75% of their monthly pay to creditors. More than half were three months or more behind in their debt repayments.

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TMG Digital Reporters