South African bank says hike in repo rate will hit consumers hard

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FILE PHOTO: The buildings with the logos of three of South Africa's biggest banks, ABSA, Standard Bank and First National Bank (FNB) are seen against the city skyline in Cape Town, South Africa, September 3, 2017.REUTERS/Mike Hutchings/File Photo
FILE PHOTO: The buildings with the logos of three of South Africa's biggest banks, ABSA, Standard Bank and First National Bank (FNB) are seen against the city skyline in Cape Town, South Africa, September 3, 2017.REUTERS/Mike Hutchings/File Photo

The recent repo rate hike by the South African Reserve Bank (SARB) would result in higher interest for people to pay for their debts, the First National Bank (FNB) said on Sunday.

The central bank raised the repo rate by 50 basis points, to 4.75 percent, last Thursday, citing an increase in inflation, fuel, and food prices.

The FNB said the 50 basis point increase was last experienced in 2016 as the SARB moved to tackle inflation concerns.

“Savings instruments linked to the prime lending rate will experience an increase in the interest earned on account of a higher variable interest rate,” FNB cash investments CEO Himal Parbhoo said. “There will be no immediate change to those individuals with fixed savings instruments; however, individuals looking to utilize fixed savings instruments post May 19, 2021, will see an increase in the rates offered by financial institutions.”

“A higher repo rate results in higher income in the form of regular interest payments, which is particularly useful during bouts of market volatility as we are currently experiencing,” he said.

FNB Wealth and Investment CEO Bheki Mkhize said the increase in repo rate would lead to a hike in the interest rate, resulting in local bonds becoming less attractive to investors, due to higher interest rates offered in cash-related instruments.

This would lead to an increase in bond yields and a decrease in bond prices, impacting bondholders negatively, Mkhize said. Enditem

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