Rate cut welcomed, but err on the side of caution says experts

By Staff Writer
The Reserve Bank's 50 basis-point cut to the repo rate on Thursday was welcomed by most but experts urged consumers to err on the side of caution.

"I sincerely urge consumers to act with great caution when considering a new loan," said FNB CEO Michael Jordaan.

"Consumer confidence is already at high levels, indicating that consumption could escalate. However, we should bear in mind that interest rates could increase during 2011 in reaction to inflationary pressures that are already appearing on the horizon."

In contrast, DebtBusters, a debt management company, welcomed the cut.

"We are very pleased to see a further rate cut by the Reserve Bank at this meeting, and this will certainly help those who are struggling to pay their debts," said DebtBusters MD Luke Hirst.

"There are still too many households falling behind on their bond repayments, and this is going to be welcome relief."

He said there were over 8 million South Africans in arrears of three months or more.

Hirst warned consumers not to go on a "spending spree this Christmas", but to rather use the money saved through interest rate cuts on paying off debt.

"Interest rates may have further room to go down, but at some point rates will start going up and consumers do not want to have large debt balances when that happens."

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