Interest rate

Two of the five members of the monetary policy committee voted in favour of 100 basis point hike.

Foreign inflows are crucial to keep the rand stable. It is currently close to R17.80/$, after starting the year below R16. "And that is what our focus is." South Africa cannot afford to be left behind when it comes to rate hikes, otherwise the rand and local assets like bonds will lose their appeal to foreign investors, who are on the hunt for good returns. There is still one more monetary policy committee meeting left, in November. Economists expect another rate hike – even though inflation may have peaked. On a new home loan of R2 million, this hikes the monthly instalment by more than R970. Electricity and other administered prices continue to present clear medium-term risks." Oil prices increased strongly from the start of the war, to around US$130 per barrel, and may rise again from today’s level as stresses in energy markets intensify. While the rate hikes will heap more pain on a distressed South African economy, the bank is under pressure to keep up with jumbo interest rate hikes in other countries, especially in the US, where rates were hiked by 75 basis points on Wednesday. The move brings the repo rate to 6.25%, and the prime rate to 9.75%. - This will heap more pain on a stressed economy, but the bank has to keep up with global rate hikes to keep the rand stable.

The cost of living in South Africa continues to go up after the South African Reserve Bank (Sarb) increased the lending rate on Thursday.

We also know that we need to keep in step with some of our trading partners and a lot of them are increasing with these sorts of increments at the same time.” Ahead of the announcement, Frank Blackmore, Lead Economist at KPMG South Africa, said, “It is generally accepted that at least a 75 basis points increase in the repo rate will take place, increasing that rate from the current repo rate 5.5% to 6.25% and therefore the prime rate increasing from 9% currently to 9.75%. In the second quarter, flooding in Kwa-Zulu Natal and more extensive load-shedding contributed to a contraction of 0.7%,” Kganyago said. “This year the Sarb expects the SA economy to grow by 1.9%, (from 2.0%). “In contrast to fuel, food inflation continued upwards. The supply of energy to the Euro Area is limited as winter approaches, placing immense strain on households, businesses and governments.”

From mortgages and the housing market to credit cards and loans, half-point increase will have an impact.

But Halifax and many commentators have warned of [a more challenging period ahead](https://www.theguardian.com/business/2022/sep/07/uk-house-prices-halifax-warns-of-more-challenging-period). It comes as the cost of living crisis forces people to put more on credit and take out loans to pay bills. Credit card rates are variable but not typically explicitly linked to the base rate, so will not automatically go up, though they have been increasing in recent months. And cost of living pressures are clearly going to weigh more heavily on many people over the coming months. [most recent UK Finance data](https://www.ukfinance.org.uk/data-and-research/data/arrears-and-possessions), which runs to the end of June, paints a mixed picture. Official data showed that the annual rate of UK price growth At the end of June there were 74,540 homeowner mortgages in arrears to the tune of 2.5% or more of the outstanding loan. Someone coming to the end of a fixed rate deal with a £200,000 mortgage could be paying £4,300 more each year for their mortgage - an extra £358 per month.” A year ago, at the height of the mortgage price war, it was possible to lock into an interest rate of less than 1% for two or even five years. For the 2.2 million people on a variable rate mortgage, the rise is very bad news, leaving many having to pay hundreds of pounds extra a year. The other half are on their lender’s standard variable rate (SVR). Unfortunately for those on fixed rates, about half are due to expire within the next two years.

America's Federal Reserve raised interest rates again by a further 0.75% yesterday, the Bank of England boosted its rate by just half a percent.

Deutsche Bank senior economist Sanjay Raja commented: “The Bank of England delivered in line with expectations. Sterling fell to its lowest level against the dollar since 1985 following the Fed’s decision. Evans added: “Interest rate markets are now also pricing in a 75bps hike at the next meeting in November, while there are still more than ten hikes priced in by the middle of next year. A gentler approach to rate rises risks sending sterling into a tailspin, and seeing inflation get even further out of control. “I wish there were a painless way to do that. “The MPC will feel its hand was forced.