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 Are you ready to just tap and go when you pay?

The integration of the tap and go system has revolutionised the way consumers make payments. Instead of having to insert or swipe your card, you are now able to simply tap and have the payment registered almost instantaneously. But how safe is this?

Read more

Debt consolidation – Explained

Dealing with debt can be daunting. If you’re struggling to keep track of which store account to pay next and weighing up which credit card is more important to settle first, you may have considered debt consolation. At Justmoney, we’ve decided to get down to the basics and explain what this entails and what impact you can anticipate on your credit score.  

Read more

3 Vehicle financing options compared – which is cheaper?

Buying a car is a considered a milestone, both in life and financially. Unless you’re able to fork out the cash, many opt for financing. But often the excitement to drive it off the showroom floor overshadows the need to check if you’re choosing the most-suited option. To help you make the best-informed decision we compare available vehicle financing structures in South Africa.

Read more

Splitwise: Split the bill not the friendship

Collecting your friends’ debt to you can be draining. You don’t want to ruin your friendship with them, and it can also be extremely awkward. I don’t know how many times I have written, deleted, and rephrased texts, reminding people to pay what is due to me.

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

Save with 10X investments

Price: Free
When: Until 30 June
Where: Online

Sanlam Cumulus Investment Plan Limited Offer

Price: From R2,500
When: Limited Period
Where: Nationwide

Roman's Pizza Special - Any Single Large Pizza

Price: R69.90
When: Until 31 July
Where: Nationwide