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Steady rates ‘wrong choice’ for heavily indebted

Cape Town - A leading debt review agency says it is flabbergasted that the SA Reserve Bank (Sarb) did not cut interest rates on Thursday at the conclusion of the monetary policy committee's three-day meeting.

DebtBusters' Kelli Knutsen said consumer debt levels in South Africa are still incredibly high and "we needed this interest rate cut, so that these debt levels can be reduced to more manageable amounts".

She said approximately 50% of South Africa’s credit active consumers are in arrears on one or more of their credit agreements.

"For many over-indebted consumers, as well as for business and commerce, this was the wrong decision."

Knutsen said the "debt epidemic" is currently "strangling many households and our economy".

"Debt problems are still not spoken about in households and we need to make more consumers aware that they have other options than just burying their heads in the sand."

Quoting figures from DebtBusters, she said the average consumer knocking on their doors spends more than 110% of their net income servicing debt. That is without taking into account their living expenses.

Although consumers have not received any financial relief regarding interest rates (on Thursday), they can only hope that the cost savings on reduced fuel prices and lower inflation rates over the past two months, in addition to a steady repo rate, will contribute towards assisting them with sorting out their financial burdens, she said.

Kganyago on Thursday announced that the interest rate will remain steady at 5.75%.

READ: Sarb keeps rates steady

He said the monetary policy committee (MPC) has unanimously decided to keep the rate unchanged for the third time since September last year.

In September, the repo rate remained unchanged at 5.75%, after it was increased by 25 basis points in July from 5.5%.

In March and May the repo rate remained unchanged, after it was increased by 50 basis points from 5.00% in January, according to Sapa.

The prime rate remains at 9.25%.

The repurchase (repo) rate is the interest rate at which the Sarb lends money to commercial banks. The prime rate is what commercial banks charge their most creditworthy borrowers.

AS IT HAPPENED: Interest rates decision

Kganyago said the MPC had for some time emphasised that it was in a process of interest rate normalisation: "We have some room to pause in this process".

He said risks to the inflation outlook are assessed to be moderately on the down side, mainly due to electricity constraints and its impact.

He said the rand has been affected by domestic factors including the Eskom's rolling power load shedding.

Knutsen said consumers feeling the financial pinch are already struggling to meet their car finance payments, home loan repayments and numerous other financial commitments.

"We are hoping consumers use this time to try and eradicate as much of their debt as possible and avoid defaulting on debt repayments,” said Knutsen.

ALSO READ: Sarb won't bank on oil price just yet - governor


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