Even more financial struggle is on the cards for South Africans. This after the recent repo rate hike of 25 basis points to 7.25%. The South African Reserve Bank (SARB) announced that the prime lending rate in the country will now be increased from 10.5% to 10.75%.

SARB Governor Lesetja Kganyago said the changes will come into effect today (January 27). Three Monetary Policy Committee members voted for the announced increase, but two voted for a 50 basis points increase.

For 2023, and as a result of extensive load-shedding and other logistical constraints, the Bank now forecasts GDP growth of only 0.3%. Given the scale of load-shedding, the Bank estimates that it deducts as much as 2 percentage points from growth in 2023, compared to the previous estimate of 0.6 percentage points.

Many economist, prior to the announcement, predicted that a 25 to 50 basis points hike was possible. Below are their reactions to the repo rate hike by the SARB:

So the SARB slashes growth forecasts , yet raises rates again – hmmm . Talk about kicking an economy when it is down .

— Joanne Baynham CA (SA), CFA ® (@madaboutmarkets) January 27, 2023

SARB growth this year est 0.3 : 2024 0.7% : 2025 1.0%. This is terrible

— Wayne McCurrie (@WayneMcCurrie) January 26, 2023

Can i ask? Genuine question? Was it necessary for SARB to raise interest rates or its fomo? Is inflation that bad in SA?

— Aaminah~Aunty Pursestrings (@msaaminahsblog) January 27, 2023

Economists react to repo rate increase

Mamello Matikinca-Ngwenya, FNB Chief Economist says the MPC moved by less than expected. He says this emphasizes the importance of improved risk sentiment. He adds that the slowdown will exacerbate weaker local activity as structural issues related to energy supply and logistics continue.

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Brina Biggs from 1Life says, “if you’ve got any kind of debt, it’s going to cost you 0.25% more…” She adds the real concern lies with those who took out debt in 2021 when the lending rate was low.

Biggs continues to say,”now looking at the 9th consecutive increase, which translates to over 100% increase since November 21 to now, on your repo rate. Back then it was a 3.5%, now it is sitting at 7.25%, so some South Africans really just need to buckle down on the debt that they now need to pay across and try to get their salaries to stretch.”

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One unexpected increase

Frank Blackmore, Lead economist at KPMG, says the risks to inflation “remains on the upside”. He says these risks include the ongoing war in Ukraine. Which has has massive impacts on fuel and food prices. Blackmore adds that the electricity price increase and loadshedding heavily impacts the economy.

Oxford Economics Africa wrote that “the outcome was against the consensus forecast of a 50-bps hike, which we also felt was a plausible outcome”. It notes the SARB’s GDP growth forecast for 2023, at 0.3%. The economic consultant says loadshedding is a “key near-term risk to the economy.”

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FNB CEO, Jacques Celliers, says that whole banks globally are increasing their interest rates. There are clear signs that the rate-hiking cycle may come to an end.

Higher interest rates have been of significant benefit to consumers who receive income from cash savings instruments. Loadshedding has, however, resulted in additional unplanned expenses for households and businesses that are striving to stay afloat amid the disruptions

Celliers continues, “the recently announced double-digit increase in electricity costs will put further strain on households and businesses, especially SMEs. Despite these challenges, we also believe that adversity tends to inspire innovation and new growth opportunities.”

In this regard, we are really encouraged by the efforts of individuals and businesses that continue to explore prospects in alternative energy sources like solar.