CAPE TOWN – South Africans can avoid any further tightening of their purse strings, according to RE/MAX Regional Director and chief executive Adrian Goslett, who was commenting after the announcement by the Monetary Policy Committee (MPC) of 2018 that interest rates would remain unchanged.
The prime lending rate thus stays at 10 percent and the repo rate at 6.5 percent.
“While most financial analysts predict that we will end the year at a repo rate of 6.75 percent, the MPC wisely has chosen to keep interest rates unchanged for a few months longer which will allow consumers time to lower their debts before interest rates make their predicted climb.
“We applaud the MPC for not putting any further strain on the population’s income during a time of economic decline that has seen the country enter into a technical recession,” said Goslett.
The rand gained 1.86 percent against the US dollar in the lead up to interest rate decision. This follows Wednesday’s announcement of local inflation edging marginally lower year on year.
Stimulus package
Corporate treasury manager at Peregrine Treasury Solutions, Bianca Botes, said: “The Governor highlighted that the economic battle of South Africa is mostly structural, which requires firm action by the government while monetary policy is most successful when addressing cyclical growth.
“Cabinet has also adopted the economic stimulus package proposed by President Ramaphosa. The president will shed light on the package during a public address on Friday.”
The MPC still warned that inflation rate was too close to the top end of the Reserve Bank’s 3 percent to 6 percent target range for 2018.
Goslett said the weak rand, low investor confidence and continued fuel price hikes were putting inflation levels under pressure. “Unless we experience a turn around that sees inflation rates lower over the course of the next few months and considering that the decision was not unanimous with three MPC members in support of a hike and only four in favour of the decision for this meeting, it is likely that the MPC will raise interest rates at the coming meeting in November this year.”
Goslett suggested that consumers do their best to avoid getting further into debt than they already are and to pay off their pre-existing debts as aggressively as possible now while interest rates remained stable.
“As difficult as it may be, consumers should practice financial discipline now more so than ever before. I would advise that homeowners make room in their budgets over the next few months in case interest rates climb, which would increase the instalments on their home loans just before the December holidays. However, if interest rates remain unchanged for the rest of the year, they will still be rewarded for their frugal living by having some money set aside for the Christmas season,” said Goslett.