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How the rand crisis and a rate hike will impact you

How the rand crisis and a rate hike will impact you

With a looming rate hike and a currency that is not showing any signs of strengthening any time soon, South Africans are in for a difficult time.

Speaking to CNBC Africa, Lesiba Mothata, chief economist at Investment Solutions said that the South African Reserve Bank (SARB) will likely hike rates by 50 basis points at the end of January, following a steep crash in the rand over the past week.

This will have a significant impact on South African consumers, particularly those with outstanding debt.

The hike in rates would primarily be to contain inflation, which has been uncomfortably close to the 6% barrier for the past quarter.

Mothata noted that for the first time since 1956, South Africa is seeing more money leaving the country than entering it.

“South Africans are taking money out of the country,” Mothata told CNBC Africa.

“That is ominous…when you look at countries that eventually had a current account crisis…these were similar outcomes.”

Ultimately, the current economic climate spells bad news for consumers. “You’re going to have to tighten your belts,” Mothata said.

With the rand tanking, and a hike rate looming, here’s how consumers, businesses and the entire country will be affected:

  • A rate hike means the cost of borrowing will be higher;
  • Subsequently, the number of over-indebted consumers is likely to rise;
  • Taxes – at least in the top bracket – may be higher;
  • Petrol prices are likely to climb;
  • Any imported products – especially technology – will see much higher prices;
  • Drought conditions are forcing South Africa to import basic resources – which just got far more costly; this, in turn, will lead to a significant increase in food prices in the country;
  • These factors, coupled with slow growth and widening current account deficit, puts South Africa’s bonds at risk of being reduced to junk status by ratings agencies.

It’s not all bad news, however, as Mothata believes that the current global oil prices, which are pushing to dip below $30 a barrel, serve as somewhat of a silver lining, which will give the country a little bit of breathing room.

“It will help the inflation situation. We remain a miracle country…sometimes things just come and help us, and this is one,” he said.

More on the rand

R20 to the US dollar is on the cards

Rand touches R16 vs dollar

Weak rand not Zuma’s fault – ANCYL

Rand crashes to lowest level ever as Zuma sacks finance minister


BusinessTech's Staff Writer is directly plugged into the South African Internet backbone, and spits out press releases and other news as they receive it. They are believed to be cl...
Join the Conversation (28 comments)
  • Mark Ryan Schulz

    All this talk about the rand being worth less today then last week. I have been watching, listen carefully, eh heh, that five rand coin in my pocket and it hasn’t suddenly become smaller or suddenly become a two rand and five zero coin eh heh. It has remained a five rand coin.

    • Silver King

      Too bad the things that R5 coin can buy will become less now. Remember even a 1c coin had value not so very long ago.

      • Mark Ryan Schulz

        I was making fun of Zuma’s brand of logic.

        • Wollie Verstege

          Agree, I think when people tell hem that the rand has dropped form R10/$ to R16/$, he honestly thinks it is only R6 difference – so what is the problem. 🙁

          • Anthony Caenazzo

            He would need to ask one of his staff what the difference is and that person would need to have matriculated before SADTU was given the go-ahead to destroy education in most township or rural schools.

      • LBS

        I still can’t understand why the 10 cent coin is so small and the 5 cent one so much bigger, LOL – both should be discarded together with the 50 cent coin. It’s worth nothing.

    • Jon Low

      Spend your R5 coin on something (e.g. eggs) and you’ll get far fewer eggs for that R5 today than you’d have got five, ten, twenty years ago. The buying-power of that coin is shrinking.

      Back in the 1950s, before decimalisation, there was a coin in common circulation called a “farthing” — worth one quarter of one penny(cent). You could buy a single Chappies bubblegum for a farthing — four for a penny/cent — or two Star sweets (eight for one penny/cent).

      Zuma should remember those times. If he had a mind, that is.

    • Charl van der Merwe

      hahahah, indeed 😛

    • john speck

      Soon be buying a lot less just dont keep it too long…

    • Robert Dixon

      You need to get out more and see how much less R1 will buy now compared with last January.
      The real rip-off is the fiction that the inflation rate is around 6% pa – the ACTUAL inflation rate is far more (this can be seen buy the way prices rise by the MONTH, let alone a yea)rbut the investment rates are determined relative to the Reverse Blank’s repo rate.
      Everything cost more but your money shrinks according to the pathetic “growth” on investments.

      • Jon Low

        The StatsSA/SARB stated inflation rate IS the actual inflation rate. The increase in your own shopping trolley is not the real inflation rate for the country at large; it’s only “real” for you and, possibly, for many other shoppers in your own income quintile.

        • Robert Dixon

          If you believe that the inflation rate given by the Reverse Blank is the ACTUAL inflation rate I suggest you consider this again.
          As an example, the fuel price has soared in the last few years and affects so much in the economy yet the inflation rate magically remains around 6%.
          Decades ago an academic from the University of Natal caused the Nats to jump up and down because he showed that the calculations at that time were delusional and produced his own which showed a MUCH higher inflation rate.
          This affects EVERYONE, in ANY quintile (especially the zero-income quintile), and the poorest take a far worse beating the the most affluent.

          Sadly, governments like to keep the official inflation rate as low as possible as they are then able to use the discrepancy between “official” and “actual” as another tax.

          • Jon Low

            In all countries the inflation rate is reported in two different metrics: the “headline” inflation (which you read about in the press) and “underlying inflation” (which includes imputed price rises and not actual in-the-shopping-basket ones).

            But the key metric is the headline inflation. It is calculated and recalibrated roughly once every three years on the results of a nationwide household spending survey conducted on a stratified statistical sample randomly drawn.

            (I was drawn to be part of that random sample about 10 years ago, so I have personal experience of the process.)

            Because of the far greater number of poor people relative to rich people, the “national average shopping basket” will be full of goods and services that poor folk spend much of their money on but which richer folk hardly spend anything on at all. A poor man spends a good fraction of his money on taxi fares and nothing on car payments and insurance, for instance. A poor man buys 20 litres of paraffin a month, whereas a rich man probably buys perhaps half a litre to start a braai. The poor man owns a cellphone; the rich man a land-line with modem and a laptop. And so on.

            So the “national average shopping basket” — being largely a low quintile one — is very likely to look very different to your family’s shopping basket over any given two-week period.

            It is, however, the reality of most of the country and therefore accurately reported, even if it varies substantially from your own personal experience.

            The fuel price — while it has a knock-on effect on almost all goods — is actually a very small factor in overall economic costing in general. When the pump price of fuel halves, or doubles, the price of a loaf of bread on the shop shelf only changes by under 2%, not 100%

            Governments use monetary policy — raising and lowering of interest rates — to keep inflation under control. Spending drives up demand-push inflation, so lower interest rates encourage more spending. High interest rates discourage spending and encourage saving, which pulls down demand-led inflation. Governments’ natural instinct is to encourage more spending (because they can then charge VAT on what you buy plus increasing economic growth), but they fear creating an inflationary price-wage spiral along with the growth thus generated. So there is a balancing act and a measure of self-regulation in their rationale.

  • Wollie Verstege

    I have so far had to retrench about 20 people just because of the last interest rate hike. Now factor in all the other issues we have to deal with and I don’t see any silver lining.

    Sad, hard times ahead for those who do not have the cognitive ability to plan ahead, although who could have planned for Zuma….

  • Charl van der Merwe

    and the fools at the bottom continue to vote Zuma, blindly

  • keithbe

    The perfect tsunami!

    • john speck

      We will be involved thats the problem

  • #TimeForChange

    Higher food prices will hurt the poor the most #TimeForChange

    • john speck

      forget it …why do u think they have fired up the racism thing…..one black person writes the worst form racism,far worse than the whites did but they dont even mention him and 702 gives the Penny woman ten times more coverage,i heard the black mentioned once,he was propagating the jewish solution in RSA, only whites are rasist its their way.

      • Silver King

        ANC is doing it for political gain. Google EFF white hate. That is a major concern and the other parties are simply ignoring it.

        • john speck

          Media like 702 also but they controlled by cANCer.

  • Chroom

    Why do we have to pay for a others incompetence and stupidity. Get him (z( to take the consequences. Put him in jail. I refuse to pay higher interest rates. Two reasons. One is to the negligence of incompetent people, secondly mismanagement of the country, i e theft, fraud, corruption and many more.

    • Dreigorian

      This is what happens in a democracy where the majority that vote does not have basic education, and is why the anc wants to keep them uneducated.

      • Chroom

        And dependand on them. A very good friend of mine said to me yesterday, that is the anc’s policy, keep the majority stupid, uneducated and dependand on them. Give them allowances, but don’t give them education

        • Dreigorian

          Yes, give them small amounts of fish, never teach them to fish on their own..

    • Jon Low

      You are perfectly free to refuse to pay higher interest rates provided you do not seek to borrow any money and have no debts still unpaid.

  • Lund Lionel

    The bad economic situation in South Africa is mainly due bad government practices, the continuing of affirmative action and government officials misusing funds. The president and his band of crooks are only making the economic situation worse. We seem to be following in the footsteps of ZIMBABWE. We have such a resourceful country and due to poor and bad leadership we are sinking fast.

  • Lee

    Please explain how a rate hike will help our currency situation. The reason money flows out is political, corruption and lack of leadership in our country and now the working class needs to pay

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