Interest rates increase


The unexpected 0.5 % increase in interest rates will make life more difficult for businesses with debts to service but it also brings the first reward in five and half years for savers, says the Cape Chamber of Commerce and Industry.

“It is important to re-establish a culture of saving because that provides the solid basis for economic growth. It is no co-incidence that successful countries have good savings cultures,” said Janine Myburgh, President of the Chamber.

“We should remember that those living on fixed incomes have had a grim time in recent years and the rise in interest rates might enable them to spend a little more and that could be a good thing for the economy.”

Low interest rates had driven investors into more speculative areas and the result had not always been good.

“What the interest increase means is that business will have to be cautious about financing new projects with debt because debt will become increasing costly. The key question is how will big business respond? We have heard a great deal about the cash piles they are sitting on. Will the rising cost of debt and the erosion of their capital by inflation prompt them to invest this money in new projects to help get growth going again?” she asked.

The decision by the Reserve Bank to raise the interest rate by a half a percent to 5.5% is going to increase prices of goods and services across the board affecting both the middle class and the poorest of the poor negatively.

Neil Roets, CEO of one of South Africa’s largest debt management firms in South Africa, Debt Rescue, said the repo rate increase could lead to many South Africans feeling the pinch.

“As we have seen many times in the past, the retail sector will be quick to jump on the bandwagon and we can expect increases in the prices of most goods and services within a matter of days.”

He said “as always” the poorest of the poor will bear the brunt of the increases because so much of their disposable money was spent on food.

“Coming hot on the heels of the increase in the fuel price and e-tolling, consumers are definitely going to feel the pain of this rate increase,” Roets said.

Dawie Roodt, an independent economist with the Efficient Group said while the increase would negatively impact on price increases, it would help to stabilise the Rand and he expected the Rand US Dollar exchange rate to stabilise at around R10.50.

This could prevent another round of massive increases in the fuel price and would help to balance the government’s books.

“It is going to negatively impact on growth because borrowing money for growth and infrastructure development is going to become more expensive,” Roodt said.

The extent to which consumers are suffering was clearly demonstrated by the fact that there had been a steady increase in the number of deeply indebted consumers who were seeking help with the restructuring of their debts by going under debt review, Roets said.

“Since December last year, we have had nearly doubled the number of clients walking through our doors seeking help.”

He said debt review was by far the best way for consumers to “get out of the hole” of indebtedness.

“It is a win-win situation for both consumers and creditors because it legally protects consumers against debt collectors and foreclosure on their properties while it guarantees creditors repayment of their money, albeit over a longer period of time,” Roets said.

Gerry Pieterse & Monique Johnstone 


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