What does inflation targeting mean for your money?

By Staff Writer

The Guv, Tito Mboweni, is going to step down. His replacement is Gill Marcus, the new Guv. Mboweni was responsible for the policy of inflation targeting, the main mechanism of which is the heavy hand of interest rates. Marcus starts in November and there are three more meetings of the Monetary Policy Committee before then. Whether Marcus changes anything still remains to be seen. There has been a debate about the efficacy of inflation targeting and its effect on the consumer. So what do interest rates affect?

 

  • Interest on savings acounts drops
  • Credit is harder to come by
  • Inflation is slowing

 

The Reserve Bank sets the Repo rate which is the cost at which the commercial banks can borrow money from the Reserve. This then determines the rate at which they will lend to you. Inflation targeting started off by aggressively hiking the Repo and has slowed down somewhat this year as inflation figures started to fall. As money gets more expensive to borrow it becomes less available. Our economy was overheating and along with the National Credit Act we should probably be thankful that we were not able to get as much credit as we wanted and so did not follow the rest of the world into the mire.

Commercial banks are commercial operations and here to make money, that means as that as the Repo drops, even though money costs less for them to borrow, they will cut the interest they pay you on your savings accounts. However with inflation coming down stuff is getting more expensive less quickly which translates into more Rands in your pockets, even though major sectors, such as food, are out of step with headline inflation and still increasing in price at a faster rate. Inflation targeting via interest rates only is a blunt tool, so lets see what the new Guv will bring to the table.

Recent Articles

Featured Changing from one medical scheme to another - effortlessly

It is coming up to the end of the year and you might be looking to change medical schemes, or options within a scheme in preparation for the new year. While you don’t necessarily have to wait for year-end to do so, providers often recommend it.

Read more

Your guide to financially surviving Christmas

There are a few times each year where you need to dig deeper into your pocket and spend more money such as birthdays, anniversaries, and the Christmas period. Whether you celebrate this religious holiday or not, the festive period - depending on how you choose to spend it - means increased travelling, buying of gifts, entertaining, and eating out at restaurants.


Read more

Trump, Trump and a little bit of South Africa

What a November we had, with the rand staging one of its best months and closing below the R14.00 level. To be honest, this looked like quite a far-fetched possibility at one stage during the month. It seems that the tide has changed a little, even though it might be short lived since the US dollar bulls are not so sure of their case anymore.

Read more

Momentum vs. The people: Who is at fault?

This week has seen insurance giant Momentum in the hot seat as debate sparked around its initial refusal of a R2.4 million life insurance pay-out. The deceased was killed in a hijacking but lost the right to claim upon failing to disclose a raised blood sugar condition at the inception of the policy, in 2014. Momentum has since agreed to the pay-out.

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

Free iCollege Scholarship

Price: R600
When: Until 16 May 2019
Where: Nationwide

Telkom December Big Deal

Price: R459 pm
When: Until 31 December
Where: Nationwide

Money Savvy Kids Giveaway

Price: R450
When: 8 December
Where: Johannesburg (Milpark)