Remaining on its rate-hiking phase, the Reserve Bank has once again announced at today’s Monetary Policy Committee meeting that the interest rates would increase by a further 25 basis points. This brings the repo rate to 6.25% and the prime lending rate to 9.75%.
The decision to raise the rates has been on the cards for some time, with current economic conditions leaving the Reserve Bank little choice.
With the US dollar strengthening over the rand in the last two weeks and the US Federal Reserve expected to raise its rates at their next meeting, economists had predicted that the South African Reserve Bank would follow suit and hike rates by at least 25 basis points. Concerns that the weakness of the rand would impact on inflation had economists expecting that the Reserve Bank would raise the rates to counteract the effects. However, while a higher rate could mitigate the inflation pressure, an excessive rate would slow economic growth and place more pressure on prospective property buyers and homeowners.
The Reserve Bank had to address the current economic conditions that the market is facing at the moment, however it will be a balancing act to try and counteract inflation pressure while not stunting growth. It is expected that there will definitely be further rate increases during the course of 2016. Prospective property buyers, along with those who currently own property should prepare for this by tightening the reigns on their spending habits and building a savings reserve. While those with high debt levels will be adversely impacted by a hiking cycle, those who have savings in place will benefit greatly.
It is important for consumers to bring down their debt levels and place themselves in the most optimum financial position they can, before the next Monetary Committee meeting.
Comment on interest rate announcement. Adrian Goslett, CEO of RE/MAX of Southern Africa.