Cape Town - Consumers must be prepared for the rate hike predictions that 2015 holds, warned DebtBusters marketing manager Kelli Knutsen on Wednesday.
"Recent news reports have stated that the SA Reserve Bank (Sarb) could hike its key repo rate by 1.5% by the end of 2016," said Knutsen.
"Despite the existing inflation relief, kicking off 2015 to a good start, inflation rates are likely to quickly increase as 2015 progresses, forcing Sarb to start another rate hiking cycle."
Predictions from various economists in anticipation of the upcoming rates announcement by Sarb's Monetary Policy Committee (MPC) on Thursday January 29 included that July will lead a 25 basis point increase in the repo rate, and by a total of 0.75% this year.
Despite the low oil price, Sarb will most likely not cut the interest rate on Thursday, but only postpone a hike until about November, according to Nedbank economist Nicky Weimar.
READ: Interest rate cut likely postponed
The key question is whether new Sarb governor Lesetja Kganyago can maintain his stance that South Africa was in a rate hiking cycle, said Nomura emerging markets economist Peter Attard Montalto.
Montalto expects the MPC would keep the rates unchanged on Thursday.
READ: Sarb won't bank on oil price just yet - governor
On the other hand, South African interest-rate derivatives are starting to predict a Sarb interest rate cut as the slump in oil drives inflation to the lowest in a year, Bloomberg reported.
READ: Interest rate cut could be looming
"We were hoping to see rate cuts in 2015 by Sarb as the number of defaults on home loans and vehicles are still incredibly high, not to mention the rate of unsecured lending,” said Knutsen.
South Africa’s household sector is deemed to be the most vulnerable to interest rate hikes. Although the household debt to disposable income ratio has declined and settled at an average of 78.4% in 2014, the improvements are too slight in Knutsen's view, to make a difference to those already in dire financial situations.
“The rate increases will affect those SA consumers with large amounts of debt the most, as the interest on these debts will increase, putting more pressure on salaries and leaving them with little disposable income at the end of the month,” explained Knutsen.
Home loans, car finance loans, personal loans and other interest bearing debts will also increase as the prime rate increases.
"We have noticed a considerable rise in the amount of low earning income consumers turning to payday loans for help when financial times get tough and on the verge of defaulting on their asset repayments,” said Knutsen.
Recent client statistics released by DebtBusters have indicated that consumers earning less than R10 000 per month have been hit the hardest by micro lenders as they have a negative disposable income before they go under debt counselling and have an overall debt-to-gross income ratio of 115%.
"Interest rates on payday loans are extremely high, which occupy the majority of the type of credit leant to DebtBusters clients,” said Knutsen.
"Although consumers have experienced a considerable reprieve from the decrease in petrol prices, food costs have not followed suit. Consumer debt levels in SA are still too high and we need repo rate reductions in 2015, so that the debt levels can be reduced to more manageable amounts.”
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