SARB presentation to parliament on 15 August 2018
Date: 20 Aug 2018
We take a look at a number of slides that the South African Reserve Bank (SARB) presented to parliament's standing committee on finance. The presentation covered a wide range of topics, including the suggestion of nationalising the SARB, interest rates charged on loans, economic outlook for South Africa to name but a few topics.
We take a look at a few of the highlights of the presentation.
Composition of debt by income group
The image below takes a look at the composition of South African's debt (I.e what makes up the debt taken on by South African consumers) by income group.
The image above shows that the majority of mortgage and vehicle loans are held by by the richest 20% of households in South Africa. The richest 20% of households also the smallest percentage of informal and micro loans. While the poorest 20% of households basically holds no mortgage or vehicle loans but large percentages of "other formal loans" and micro loans. The problem with this is the fact that the type of loans held by the richest 20% of households have interest rates far lower than the interest rates held by the poorest 20% of households. And this just compounds the inequality gap between the rich and the poor in South Africa. The image below shows the average interest rate of the various loan types over the last 3 years.
Interest rates on various loan types
As mentioned above the interest rates charged on loans largely held by the richest 20% of South African households is far lower than the interest rates charged on the loans largely held by the poorest 20% of South African households. The summary below shows the average interest rate charged per loan type:
- Mortgage: 10%
- Vehicle: 12%
- Credit Cards: 17%
- Micro loan: 28%
- Informal loan: 30%-50%
Inflation of the rich and the poor
The image below shows the percentage of time that the inflation rate (the official headline inflation rate) has been higher than the official inflation target of between 3% and 6% as well the percentage of time that the inflation rate of the poorest 10% of households came in above the top range of the SARB's inflation target of between 3% and 6%
The problem for the poor is the fact that they spend a large percentage of their income in basics such as food and staples. They do not have the room to maneuver to buy something else if prices increase to much, while richer consumers can shop around for items that offers them the best value for money as the amount of their total income spent on basic goods are far less, thus they have more funds available to buy other goods, where there is room to shop around.
Emerging market currency weakness
The image below shows the slide in which SARB highlighted the emerging market currency weakness since the start of 2018.
As the image below shows only the Mexican Peso gained any ground against the US dollar since the start of the 2018, while the Turkish Lira is the big loser so far in 2018. South African Rand has not had a great year against the US dollar this year with it losing over 10% of its value against the Dollar since the start of 2018, which keeping everything else equal means any import by South Africa is now more than 10% expensive than it was at the start of the year, this will push up production costs and lead to higher levels of inflation in South Africa, and controlling inflation is the South African Reserve Bank's main focus. With expected inflation set to increase South African consumers should brace themselves for interest rate increases very soon.