Expect an interest rate hike before the end of the year

Last week the Reserve Bank left the repo rate unchanged at 5.5 percent for the eighth consecutive meeting, but Dr Neal Bruton of RGT Smart believes that the tide is turning and there’s a strong  chance of an interest rate hike before the end of the year.

Speaking at a function at the Nelson Mandela Bay Business Chamber recently, Bruton said the Reserve Bank had indicated growing concerns over rising inflation.

“Inflation is already above the Reserve Bank target of between three and six  percent, and is likely to stay there for some time to come,” he said.

Bruton said increases in the fuel price, exacerbated by current global tensions in the Middle East and Africa, and sanctions on Iran, would further drive inflation, and in so doing, would also increase the chance of a rates hike.

Bruton said an interest rate hike would have a significant impact on consumers who were already overextended. He said household debt had only declined slightly, from 82 percent to 74%, despite the cost of servicing that debt being at a 36 year low.

“Households have simply not addressed their excessively high levels of debt, I believe that when the interest rates go up, there will be a lot of pain in the market,” he said.

Household disposable income was also being negatively affected by increasing costs of electricity, rates and taxes.

“This is further exacerbated by the fact that South Africans, as a whole, do not save,” he said. Bruton said according to Statistics South Africa, South Africans had been spending far more than they earned since 2006.

Bruton’s outlook for the year was a general slowdown in the economy on the back of a global slowdown led by Europe, with GDP growth at around 2.7% and an interest rate increase of around 0.5%.

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Derrick Spies is the founder, editor and publisher of Metro247. Derrick started his career as a journalist in 2000, working at the then Port Elizabeth Chamber of Commerce and Industry (now Nelson Mandela Bay Business Chamber) after returning from the UK. He subsequently worked in various positions within the print media field, from business reporter to online news editor at The Herald and as senior business reporter at the Daily Dispatch in East London. Derrick returned to Port Elizabeth in 2009 and decided to start his own business, focusing on marketing and communication, and Derrick Spies Consulting was born. Derrick Spies Consulting relaunched as DSC Media in 2010, with a stronger emphasis on media management practices, social media integration and utilization, website and electronic newsletter development as well as traditional media and PR services. In 2012 DSC Media entered the publication sphere, with the launch of Metro Newspaper (SA). Metro Newspaper was relaunched in 2016 as Metro247