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Send  Share  RSS  Twitter  28 Mar 2012

INTEREST RATES: No Rates Relief in Sight for Beleaguered Customers

 





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While itÂ’s unlikely that the South African Monetary Policy Committee (MPC) will be raising short term interest rate at its meeting on 29 March, this will offer little relief to consumers who are currently battling a barrage of increases in their general costs of living.

Inflation Figures and Economic Growth Stall Rates Increase


According to Isaac Matshego, an Economist at Nedbank Group, still weak economic growth coupled with recent better than expected inflation figures should result in the MPC once again delaying the rates increase announcement that has widely been anticipated since the third quarter of 2011.

However, Matshego is less than optimistic about any positive impact this decision will have on consumers, or about the likelihood of the short-term interest rate remaining unchanged for the duration of 2012.

“While an unchanged interest rate means that the cost of borrowing and servicing debt remains the same for South Africans,” Matshego says, “this will offer little comfort to consumers who are facing steady and often steep month-on-month increases in their costs of living.”

Interest Rate Cut Unlikely Due to Long Term Inflation Control


Given the challenging economic environment, Matshego acknowledges that consumers may be disappointed that the more upbeat inflation numbers donÂ’t translate into an interest rate cut. However, he points to the Reserve BankÂ’s responsibility to control inflation in the long term as a significant reason in its likely decision to keep the rate unchanged.

“In a volatile inflationary environment like the one we are currently experiencing, it is very easy for a single pricing event to have the type of knock on effect that causes inflation to quickly run out of control,” he explains, “the MPC has a responsibility to ensure that this doesn’t happen, and it’s only real weapon in this fight against rampant inflation is the short-term interest rate.”

According to Matshego, when MPC decisions are viewed in this light, it becomes a little clearer why the committee would be hesitant to lower interest rates in an attempt to encourage economic growth at this stage in the countryÂ’s inflationary cycle. It also points to a strong likelihood of a rate increase later in 2012 when the current price increases would have translated into higher inflation figures. According to Matshego, all of these factors point to a distinct possibility that South Africa consumers will need to brace themselves for the additional financial pressure of an interest rate increase after the November MPC meeting.

 
 
 
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