Nicolette Dirk, finance writer,Justmoney.co.za
First National Bank (FNB) will maintain its prime lending rate at 9% following the Reserve Bank’s decision to keep rates on hold until the next meeting of the SARB Monetary Policy Committee on 17 July 2014.
Jacques Celliers, CEO of FNB, said that with growing concern that our economy may grow slower than expected in 2014, consumers should be cautious with their debt.
“The bank continues to forecast rates hikes later in the year. Consumers should act with care and plan ahead for the remainder of 2014.
Certain retail loans can be consolidated at lower rates in our credit card division. Investors seeking interest income should consider higher-yielding accounts such as our inflation-linked products,” Celliers.
Will the interest rate increase?
Sizwe Nxedlana, chief economist at FNB, said that despite the Reserve Bank’s decision not to raise interest rates at yesterday’s meeting, it is only a matter of time before interest rates are raised further.
“Domestic inflation is now above the upper limit of the Reserve Bank’s 3% to 6% target. We expect inflation to accelerate further and to remain above 6% for the rest of this year. The South African economy also remains vulnerable to rising global interest rates given its large current account deficit which has been placed under more pressure by the impact of labour unrest on platinum production and exports so far this year,” said Nxedlana.
He added that rising US rates will increase the difficulty of funding the current account deficit. This is likely to keep the rand under pressure and place further upward pressure on consumer inflation.
“Against this background we think it is only a matter of when not if interest rates will be raised again. However, the magnitude of the interest rate hiking cycle may not be as severe as previous cycles given current weak economic growth. Nevertheless, we urge households to exercise prudence in managing their household finances and to ensure that they are able to meet their monthly obligations at higher interest rates,” said Nxedlana.
How should you deal with you finances now?
Paul Slot, president of the Debt Counsellors Association of South Africa (DCASA), said that now is the time for consumers to get rid of debt.
“We are in a tight interest cycle and there is no doubt that it will go up again. You should use the time now to repay your debt as quickly as possible, especially if your debt repayments exceeds 35% of your income,” said Slot.
Slot added that people should also avoid making new debt in this period, especially with the possibility of a future interest rate hike as, should the Reserve Bank raise the interest rate, the interest of debt repayments will go up as well.
“Cancel contracts like DStv for nine months and use that money to pay off your debt quicker. Shopping around for a more affordable insurance is another way to cut costs. This is a period when consumers need to be more responsible with what they spend and make some serious lifestyle changes,” said Slot.