SARB Hikes Rates: Death Of The Middle Class Accelerates
The South African Reserve Bank’s Monetary Policy Committee just announced that they are hiking interest rates by a further 50 basis points, following a small 25 basis point hike last November.
I am surprised by the SARB’s aggressive action. Even though I thought we might see a 25 basis point hike (in an attempt to defend the currency), I did not expect a 50 basis point hike in such a weak economy.
The higher debt servicing costs that will arise because of this rate hike is yet another burden that adds to the squeeze South Africans will experience in 2016.
Apart from higher debt servicing costs, the other two major financial pressures South Africans will experience this year are inflation on imported items (due to the weakness of the Rand) and rising food prices (due to the droughts we experienced in 2015).
The poor and the middle class will be most affected by these pressures.
It seems like the unfortunate predictions I made 6 months ago are starting to come true.
With the latest rate hike, and the implied hawkish attitude of the SARB, we may even see nominal asset price deflation in 2016, e.g. falling house prices in middle and lower class neighbourhoods.
For those who were appropriately positioned ahead of time: it’s time to sit tight, wait for things to unfold and be on the lookout for investment opportunities that will arise during the downturn.