How The Repo Rate Increase Will Impact Job Creation

Consumers should brace themselves for higher debt repayment after the South African Reserve Bank’s Monetary Policy Committee (MPC) announced a 50 basis point increase to the repo rate. This is also set to impact job creation in the country.

 

 

In the final quarter of 2021, South Africa’s unemployment rate climbed to 35.3%, meaning that more than one in every three people living in the country are unemployed. And while the end of the Covid-19 related lockdown’s looked to be a light at the end of a dark tunnel, further challenges are being presented that are out of the government’s control.

Dr Christie Viljoen says the 50 basis point increase to the repo rate will weaken job creation in South Africa. This will also impact the expendable income of people as households are having to fork out more money for fuel and food due to rising inflation.

Viljoen says economists had a good outlook for 2022 as the country exited the Covid-19 related lockdowns and restrictions. This created an expectation for higher economic growth. However, high inflation rates have caused economists to downgrade their growth projections for the county.

He said, “It means that job creation is not where it should be at all. So it’s from an income perspective, household income perspective it’s bad, when you look at inflation it’s bad, from an expenditure perspective we know fuel prices are going to go up again significantly next month, electricity prices increasing in July so no there isn’t really much of a rosy picture to paint”.

Viljoen adds that the impact of the war in Ukraine is a big factor, as South Africa imports wheat and sunflower oil from the country. Due to the war, the cost of these products has increased and consumers are having to spend more on these products in supermarkets around South Africa.

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“If it wasn’t for the situation in Ukraine, this year could have probably played out a lot differently. We would certainly have much lower interest rates because the reserve bank wouldn’t have had to make this 50 basis point increase today,” explained Viljoen.

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