Joint groan after rate hike

Fri, 13 Jun 2008

The decision of the SA Reserve Bank to hike the repo rate by 50 basis points to 12 percent causing a rise in the prime lending rate to 15.5 percent was criticised by various organisations on Thursday.

Cosatu-affiliated finance union Sasbo called the hike "futile", saying it would not dampen fuel and food price pressure on inflation.

"The current high levels of inflation are largely due to exogenous factors beyond the control of the Reserve Bank", said Shaun Oelschig, Sasbo general secretary.

"The latest increase will instead cause a retail recession, hurt the consumer further, cause job losses, especially in the banking and retail sectors, and will continue to result in many more South Africans not being able to afford food, transport, or electricity," he added.

The union, which claimed membership of 66 000, said it was considering protest action.

Trade union Solidarity said it too was planning a campaign to give South Africans the opportunity to inform the Reserve Bank of their opposition to higher interest rates.

The union described the rate hike as a "big mistake" that showed how out of touch Bank Governor Tito Mboweni was with South African reality.

"Today's (Thursday) decision will indubitably result in lower economic growth and consequent lower production and reduced employment.

"The bank's decision will cause thousands of South Africans to lose their cars and houses in the coming months," Solidarity spokesman Jaco Kleynhans said.

The union wanted to know whether the bank had considered alternative means to curb inflation.

"It seems to be under the impression that there is only one solution to high inflation, and that is higher interest rates," Kleynhans said.

Solidarity said inflation could be brought under control through increased domestic production, reduced imports and a more competitive economy.

The Freedom Front Plus said the increase would not solve the current inflationary tendencies, saying higher prices were caused by international food and oil shortages.

"The increase in the repo rate will not contribute to further savings but will rather increase the input costs on production even further, with a negative knock-on effect for inflation figures," the party's spokesman on trade and industry, Jaco Mulder said.

Thursday's hike was the tenth consecutive interest rate increase since June 2006, leaving many South Africans in the lower and middle income groups struggling to put food on the table and a roof over their heads, the Inkatha Freedom Party said.

"We believe that government must review the three to six percent inflation band and adjust it upwards," the party's finance spokesperson Narend Singh said.

"Over the past few months, Governor Mboweni has been urging South Africans to curb their spending, save and pay off their debts. Consumer spending has cooled down, but now South Africans will have to tighten their belts even further."

Property groups Re/max and BetterBond said South African home-owners' debt burden had been made even heavier.

This increase however set the scene for a booming rental market with excellent prospects for certain investors.

"Because of affordability issues now faced in the current market climate, this driven by today's interest rate hike, increased food and fuel costs, and banks tightening credit criteria, rental properties will be in greater demand, as a proxy for homes, which are becoming more difficult to obtain," the group said.

"Now, more than ever, the services of professional real estate agents will be required to bridge the gap between the expectations of a seller and a price sensitive buyer in order to conclude a transaction," the companies said.

Jeanne van Jaarsveldt, marketing and financial director of Re/max said the company expected the housing market to bottom out in 2008, and price growth forecast to increase gradually on the back of lower inflation and interest rates in 2009 and early 2010.

Eskel Jawitz, chairperson of Jawitz Properties said the economy in general and the property market in particular were under siege.

He said people who bought property two years ago were going to have to pay about 35 percent more on their bond instalments.

Samuel Seeff, chairperson of Seeff Properties, said it would be realistic to expect a further decrease in the number of sales taking place which would, ultimately, lead to a fall in house prices.

"The number of sales will now begin to decline as the market, which was flat up until now, begins to come off," he said.