SARB warns households on high debt

JOHANNESBURG – South Africa’s central bank sent another signal on Wednesday that the next move in interest rates may be up, warning borrowers and lenders that the benign environment for high levels of household debt may not continue.

South African interest rates have fallen to their lowest levels in 25 years, igniting a consumer spending spree which boosted household debt as a percentage of disposable income to a record 65,5 per cent in the final quarter of 2005. Central bank officials have previously pointed out that although the trend is a concern, it may be sustainable in the short term as low interest rates mean that the cost of servicing higher levels of debt is not prohibitive.But in its annual financial stability review, the South African Reserve Bank reinforced its message that monetary policy now has a tightening bias given that inflation risks were mounting, mainly because of soaring global oil prices.”Although households are able to service outstanding debt quite comfortably, borrowers need to be aware that the benign environment may not continue indefinitely,” the central bank said.”The Bank continues to monitor the high level of household indebtedness.”The Reserve Bank has held its key repo rate at seven per cent for six consecutive meetings after cutting it by 6,5 percentage points between 2003 and 2005.In the review published on its website www.reservebank.co.za, the central bank also said mortgage debt – which comprises about half domestic loans and advances in the continent’s biggest economy – continues to rise strongly.-Nampa-ReutersCentral bank officials have previously pointed out that although the trend is a concern, it may be sustainable in the short term as low interest rates mean that the cost of servicing higher levels of debt is not prohibitive.But in its annual financial stability review, the South African Reserve Bank reinforced its message that monetary policy now has a tightening bias given that inflation risks were mounting, mainly because of soaring global oil prices.”Although households are able to service outstanding debt quite comfortably, borrowers need to be aware that the benign environment may not continue indefinitely,” the central bank said.”The Bank continues to monitor the high level of household indebtedness.”The Reserve Bank has held its key repo rate at seven per cent for six consecutive meetings after cutting it by 6,5 percentage points between 2003 and 2005.In the review published on its website www.reservebank.co.za, the central bank also said mortgage debt – which comprises about half domestic loans and advances in the continent’s biggest economy – continues to rise strongly.-Nampa-Reuters