Interest rate probably left unchanged

Henry

The Reserve Bank’s monetary policy committee today (Thursday) announces its latest decision on the interest rate, with most experts expecting the rate to be left unchanged.

The announcement is made against the background of the general election, which is labeled as a watershed moment in the country’s future – but also creates great uncertainty.

The committee is therefore expected to follow a cautious approach.

The Reserve Bank earlier asked that the inflation target band be lowered to the 3% mark in order to increase South Africa’s competitiveness and bring the target in line with that of other emerging markets. The Treasury has indicated that it will review this target, but it will ultimately be a decision for the new government to make.

Consumers need to stick around longer

However, an unchanged interest rate also means that consumers with debt will have to hold on longer to keep their heads above water.

Thys van Zyl, CEO of Everest Wealth, says there is still great uncertainty about the ongoing inflation risk. He expects that interest rate relief will only be in the offing towards the end of the year.

“The result of the election and possible consequences will also have to be taken into account first. It will also have to be seen whether the US Federal Reserve Board considers lowering interest rates in September or November.”

After Thursday’s announcement, the next interest rate decision is in September and then again in November, but there is always the chance that the interest rate will only be lowered next year when the Reserve Bank is confident that it is on track to sustainably meet its inflation target.

“There could possibly be a reduction of 25 basis points by November, but the expectation is that the cycle of interest rate cuts may only start in January. Then a reduction of 50 basis points might even be possible,” says Van Zyl.

However, the outcome of the election and the possibility that load shedding could be reintroduced later in the winter remain risk factors.

“Consumers will therefore remain under great pressure with less disposable income, more debt repayments and rising living costs. The average salary in the country is also not increasing at the same rate and is not enough to offset inflation. South Africans are therefore getting poorer and poorer.

“Consumers must guard against taking on further debt unnecessarily, using credit cards recklessly, living beyond their means and they must think twice about every rand spent.”