The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) will meet this week to discuss and review the country’s current level of interest rates. Having announced no hike in the interest rate in its previous meeting in January this year after a hike of 25 basis points in November last year, all eyes will be on whether the MPC will raise interest rates further.
Sanisha Packirisamy, Chief Economist at Momentum Investments, says that the outcome of this announcement will impact all South Africans in one way or another:
“The MPC meets every two months to discuss movements in the economy and the Reserve Bank’s position on the interest rate. Simply put, if interest rates are raised, the cost of debt becomes more expensive and South Africans’ pockets tend to become tighter. As such, investors tend to become more risk-averse when interest rates rise. This is because the cost of any repayments on existing debt will increase accordingly, which will typically leave people with less disposable income and decrease average national spending. Slower national consumer spending is generally viewed as bad for the economy, which usually means lower corporate valuations and, ultimately, poor performance from equities and many other ‘riskier’ investments.”
However, a rise in interest rates is not necessarily bad news to everyone, says Sanisha. “Higher interest rates are positive for people who have savings or investments that are linked to the repo-rate. This is because their savings will earn interest at a faster rate, which will result in higher returns over time.”
Regardless of whether interest rates are raised this week, Sanisha urges South Africans to keep their spending and debt in check over the coming months. “The SARB signalled its intention to drive inflation expectations closer to the midpoint of the 3% to 6% inflation target band and as such has not closed the door on further interest rate increases further down the line”.
“So, whether or not interest rates remain unchanged this coming week, do your best to repay your current debt and avoid taking on unnecessary future debt to ensure you’re not further negatively impacted by any future interest rate hikes that may lie ahead,” Sanisha concludes.