Reduce debt: economists

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NewRandMoney Reuters.

Johannesburg - Consumers should use the unchanged 5.5 percent repo rate to reduce their debt because the economy is weak, economists warned on Thursday.

The SA Reserve Bank announced the repo rate would remain unchanged at 5.5 percent, but sounded a warning of increases to come.

“The committee continues to hold the view that we are in a rising interest rate cycle, and interest rates will have to be normalised in due course,” SARB governor Gill Marcus said.

The decision meant the prime interest rate would remain steady at nine percent.

First National Bank chief executive Jacques Celliers said South Africans should reduce their debt.

“With growing concern that our economy may grow slower than expected in 2014, consumers should use the present stable rates environment to reduce debt,” he said.

“The bank continues to forecast rates hikes later in the year. Consumers should act with care and plan ahead for the remainder of 2014.”

Chief investment strategist for Old Mutual Wealth, Dave Mohr, said the unchanged repo rate reflected a weak economy.

“The major reason for this decision can be attributed to the Reserve Bank’s growth forecast for 2014, reduced from 2.6 percent to 2.1 percent, which reflects the weak state of the local economy.

“It is likely that an increase could still occur later this year, but it is unlikely to be more than a 0.5 percent increase.”

Chief economist at FNB, Sizwe Nxedlana, said it was only be a matter of time until rates were hiked.

“We expect inflation to accelerate further and to remain above six percent for the rest of this year,” he said.

“The South African economy also remains vulnerable to rising global interest rates given its large current account deficit which has been placed under more pressure by the impact of labour unrest on platinum production and exports so far this year.”

Investec economist Annabel Bishop said it was expected that the SARB would hike interest rates by 50 basis points this year to six percent.

“However, the timing of the hike is likely to shift out from our previously expected move in July, to the fourth quarter of this year,” she said.

FNB household and property sector strategist John Loos said the expectation was that the prime interest rate would peak at 11

percent in 2015 in a moderate hiking cycle.

He said household finances remained fragile.

“The FNB expectation is for prime rate to end 2014 a little higher at 9.75 percent, and rise further in 2015 to peak at 11 percent,” he said.

“This would be far more moderate than the 15.5 percent prime rate peak of 2008, and given the lower level of indebtedness relative to income today compared to back then, the combined result should be a far more modest rise in the level of bad debts compared to the extremes of 2008/9.” - Sapa



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