Johannesburg - There may have been relief that interest rates went up only half a percentage point this week, but for six million South Africans with impaired credit records, this increase sent them deeper into the debt trap.
Reserve Bank governor Tito Mboweni spooked the markets with a less-than-expected increase in the repurchase rate of only 50 basis points causing the currency to wobble.
Apparently his earlier tough talk had prepared the markets for a higher than usual hike in the rates.
The repurchase rate - the rate at which the central bank lends to commercial banks - is up to 12%, while the prime rate - the rate at which banks lend to the public - has increased to 15.5%.
The National Credit Regulator (NCR) says six million South Africans had adverse credit records as of September last year.
Rates hikes
Since then the Reserve Bank has hiked interest rates five times, pushing the cost of paying debt up quite considerably.
This latest increase will put even more consumers in financial distress, says the credit industry.
The Credit Bureau Association (CBA) says credit bureaus are reporting an increase in defaults and judgments, especially within the low and middle-income brackets.
CBA executive director Prudence Busane said: "The numbers of consumers in trouble will continue to rise because most consumers have over-committed themselves."
She said lenders were much more circumspect when it came to extending credit. "It is definitely much more difficult to access credit now than at the beginning of the year."
Busane said that credit extension overall had begun to slow.
Commercial banks say the increases in the interest rates have begun to sting consumers.
Defaulters
The banks report high numbers of defaults and increased requests for review of credit agreements.
"Clearly the consumer's ability to pay has been squeezed by the rate hikes," says Busane.
Rael Levitt, chief executive of the Alliance Group of Auctioneers, said as many as 5 000 vehicles were being repossessed each month. He estimated that between 1 000 and 2 000 homeowners lost their most valuable belongings every month.
Furniture retailers say the number of consumers defaulting on their instalments has risen considerably over the past few months.
Furniture Retailers Association executive director Dick Behrens advised consumers in financial distress to approach their creditors to have their terms reviewed.
He said the new credit act made it difficult for the furniture sector to repossess goods.
"Many creditors would rather work with their debtors to find solutions rather than go the expensive route of litigating," he said.
Job losses
Trade union Solidarity said the increase would undoubtedly result in lower economic growth and consequently lower production and reduced employment, and that it would "cause thousands of South Africans to lose their cars and houses in the coming months".
The hike was the tenth since the first in June 2006 and was in response to a serious deterioration in the Reserve Bank's inflation forecasts. Food and fuel were mainly to blame, but other aspects of inflation were also making their presence felt.
The banking union, Sasbo, said the latest increase would cause a retail recession, hurt the consumer further, cause job losses, especially in the banking and retail sectors, and would continue to result in many South Africans not being able to afford food, transport or electricity.
"We will also see a dramatic increase in personal bankruptcies," said Sasbo's Shaun Oelschig.
The latest interest hike means that consumers will pay about 35% more on their bond instalments than two years ago.
"I think it is fair to say that the economy in general, and the property market in particular, is under siege," said Eskel Jawitz, chairperson of Jawitz Properties.
"Given the escalating price of petrol, a looming hike in electricity costs, the new rates and taxes which are now coming into force, with all of this coupled with higher bond repayments, the question must be asked how much more can the consumer absorb? We are all going to have to tighten our belts and wait until the turbulence subsides."
Business Unity SA (Busa) said it saw the decision by the Reserve Bank to raise the repo rate by 50 basis points as a recognition of the new economic realities that SA currently faced.
"Although Busa supports the concept of inflation targeting in SA, we are concerned about the negative impact of higher interest rates on growth and employment.
"While on the one hand energy and food prices are being mainly driven up by particular structural factors, on the other there is now widespread accumulating evidence of a sharp slowdown in economic and business activity in SA.
"Business confidence, as measured by credible indices, is at a new seven-year low. Busa wishes to see a positive investment climate being maintained in order to underpin the growth rate in 2008/09.
"Busa also considers too heavy a burden is now being placed on monetary policy to curb cost increases which emanate from other policy decisions, such as increases in electricity tariffs," Busa said.
The SA Chamber of Commerce and Industry said the decision came as no surprise. "Business is at least thankful that the increase was not one of 100 basis points.
"While the decision demonstrates the bank's determination to combating inflation, the increase will add to the woes of consumers and business alike.
"Given the dominance of external factors in the current inflation spiral, it remains to be seen whether the increase will have any effect other than to curb inflationary expectations.
"Faced with further increases in the price of fuel, energy and utilities, the repo rate increase will have a negative impact on business."
- City Press