Rate rise may make a bigger than expected difference

Published: Fri 18th July 2014
Author: Barry Davies


Yesterdays interest rate increase was not unexpected, says Chas Everitt International property group MD Berry Everitt, as Reserve Bank Governor Gill Marcus has been warning since the last meeting of the Monetary Policy Committee that it would occur if the rate of inflation breached the 6% level.

“However, any increase obviously puts further pressure on consumers, many of whom are only just managing to keep afloat at this stage, thanks to some hefty cost of living increases in the past year that have not been matched by similarly large pay rises.

“Consequently, although the increase was only a very restrained 25 basis points, it may have a bigger influence on consumer behaviour – especially when it comes to incurring new debt - than one might otherwise have expected.

“What is more, one must bear in mind that we also had an interest rate increase in January, so rates are actually now 0,75 percentage points ahead of where they were at this time last year. “

This week’s increase, which takes the repo rate to 5,75% and the prime rate to 9,25%, will once again mean higher repayments on everything from home loans and cars to credit and store cards – and higher food, transport and utility bills as the suppliers of these good and services also now have higher costs to contend with.

“And when you think of all these extra amounts in an average household, they can total up to quite a substantial sum of money. This will generally prompt consumers to do their utmost to reduce their debts and free up some more of their disposable income once again, but at the very least, it will most likely mean they cannot qualify, under the National Credit Act, to borrow any more.

“This is extremely important when one considers the current fragile state of the economy and the employment uncertainty that goes with that. No-one wants a repeat of the 2008/09 crisis when thousands of over-indebted consumers lost their homes because they were unable to keep up the repayments due to a job loss or cutback.”