Cash-strapped consumers struggling to keep up with new-year expenses can breathe a little easier following the decision by the Monetary Policy Committee (MPC) of the Reserve Bank to keep interest rates where they are for at least the next two months.
The decision means the repo rate will remain at 6,75% and the prime rate and home loan ‘base” rate at 10,25%, says Rudi Botha, CEO of SA’s biggest bond originator BetterBond, “and that means no increases in minimum home loan and car instalments, or credit and store card repayments, to the great relief of consumers”.
The decision was widely expected, he says, even though the November inflation rate of 5,2% was uncomfortably close to the Reserve Bank’s 6% ceiling. “The stronger rand and lower oil prices in the past two months have really helped to ease the upward pressure on inflation, and economists expect the December figure due out next week to be lower.
“The latest available figures also show that overall credit growth is relatively slow, which means that consumers are being cautious about adding to their existing debt load. Indeed, the overall household debt to income ratio has shrunk over the past 10 years from almost 86% to below 72%.
“In addition, the US Federal Reserve has taken a softer stance on interest rate raises, which means that SA can be more competitive in attracting foreign investment without raising rates.”
On the other hand, says Botha, it is now a priority to get the economy to grow faster and generate more employment, so consumers need to be encouraged to spend in order to stimulate manufacturing and other forms of production - and the only way to do this in the current climate is to maintain or even lower interest rates.
“Most households are still under great financial pressure, though, and we would encourage them to maintain strict budget controls, especially now when they are dealing with increases in everything else, from school fees to insurance premiums and medical aid subscriptions.
“In addition, we strongly suggest that more government attention needs to be paid to assisting and encouraging entrepreneurs and small business owners to expand their operations, because they hold the real key to rapid employment growth.”