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 Do you need credit to survive Easter?

Easter weekend is here and with it the expectation of celebration. While there is nothing wrong with this, it often means spending more money than you bargained for.

 

Read more

Young woman building a legacy brick by brick

When her dad passed away, Siyasanga Ngcongca, an internal auditing graduate, took over the family business. Ngcongca Construction, as her company is known, is a service provider to five insurance companies, handling building and commercial claims.

Read more

Can you evict paying residential tenants?

One of the most common reasons for wanting to evict a tenant is non-payment of rent. But there are many other situations that landlords may encounter. These can range from damaging property and breaching contract, to being reported as a continuous disturbance by neighbours.

Read more

How one entrepreneur designed her financial future

From as early as Cannon remembers, she recalls her grandmother seated behind a sewing machine. Through this influence she was sewing her own aprons and doll dresses by the time she was ten, and by the time she was 16, she started designing and make her own clothes.

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

Woodstock Grill and Tap Monday Burger Madness

Price: R75
When: Mondays
Where: Cape Town

Active Sushi Special

Price: R199
When: From Tuesday to Sunday
Where: Cape Town

Let's Teach and Travel TEFL Online Course

Price: R2,400
When: Daily
Where: Online