Repo rate increase painful medicine, but what is needed - economist
Chief Economist at Efficient Group Dawie Roodt says the decision by the Reserve Bank's Monetary Policy Committee to increase the repo rate is the only viable option for South Africa.
The South African Reserve Bank's Monetary Policy Committee (MPC) increased the repo rate by another 75-basis point, which brings it to 7% per year.
The prime lending rate is now 10.5%.
Roodt says while the increase will be painful for most South Africans, it is the only viable option.
"What it means is that interest rate is going to go up and those who owe money will pay more to the bank for mortgage, payments for their cars, but fortunately those who saved money are going to get a little bit more; somewhere there's going to be losers,” he says.
“Overall, it is not going to be good for the economy, it's going to be painful to the economy and it will also lead to weaker economic growth. But unfortunately, that's the only option that we have - we have to increase interest rate because we have inflation problem in the country and inflation is far more damaging to the economy than interest rate," says Roodt.
"I think we all need to support the Reserve Bank governor Lesetja Kganyago for taking such a bold step and such an unpopular step because that is the right medicine for South Africa. It is not nice medicine, but it is what we need at the moment and in six months' time or so, inflation would've turned, and we can start talking about lower interest rate,” he adds.
“I am afraid it will lead to hard times, and we are probably going to see another interest rate after this one but soon inflation will turn around and things will start getting a little bit better," he concludes.
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