Today, the Reserve Bank governor, Tito Mboweni, announced that interest rates in South Africa will go up by 50 basis points as many of us had predicted to the lead up to this announcement. The repo rate, which is the rate the Reserve Bank lends money to commercial banks, is now 11% and the prime lending rate is now 14.5%. Rates have now gone up by 450 basis points since June last year.

For all those hoping for a Merry Christmas, it may not be that merry anymore after this rate hike. Christmas is meant to be a time of spending money shopping for gifts with money obtained from annual bonuses, but it now maybe wise to save on those expensive gifts and rather pay off your debts with your bonus.

The Reserve Bank really had no option but to increase interest rates as the rate of inflation continues to rise past the target of between 3% and 6%. The only instrument the Reserve Bank has to try ease inflation is the use of interest rates and thus the increase. And according to the governor, the target rate of inflation is not going to be reached any time soon and this could mean we may experience further interest rate hikes in the first quarter of next year.

The rate hike will hit hard on home owners who have bonds, as their monthly repayments will rise as of tomorrow. Bond repayments are the largest expense home owners incur on a monthly basis. This could signal an increase in home repossessions as some home owners may now struggle to repay their bonds. But most home owners may opt to have their car repossessed first, that is if they do have a debt on their car, before they allow their home to go, so thus car repossessions will be greater than home repossessions if it gets that far.

On the other hand, an angle many people do not think of, with the increase in interest rates means that for those with savings, they will be getting a greater return on their savings with the increase in interest rates. Not a lot of people have their money saved up in a savings account but for those few, they would be happy with this interest rate hike.

It looks set like the interest rate hikes are going to continue for a bit longer before they start to stabilize and then hopefully start going down again. All this hinges on the rate of inflation in South Africa and the outlook for the 3% - 6% target does not look like being met anytime soon, not even in 2008.

Click here to read the full Monetary Policy Committee (MPC) statement.

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