Guiding consumers since 2009

What will happen with the interest rate this week?

By Staff Writer
Last week the US Federal Reserve announced that it was keeping interest rates unchanged. The general consensus among industry experts is that the South African Reserve Bank (SARB) will follow suit and that an interest rate hike is unlikely.
 
In July the Monetary Policy Committee (MPC) announced a 0.25% increase in the repo rate, which pushed it up to six percent.
 
According to a report, the rate hike in July went against what economists were expecting. However, in light of the previous rate hike, and the US Fed maintaining interest rates last week, experts believe that it is likely that the SARB will put off a rate hike for the time being.
 
Repo rate likely remain unchanged
 
“Our original forecast had been that there was around a 60% chance of a hike at this meeting because of the move in the currency. However, we are now sitting on the fence and see a marginally stronger likelihood of rates unchanged,” revealed Peter Attard Montalto, a research analyst at Nomura, a financial services group.
 
“We think it will come down to the SARB Governor and a desire to be at, not ahead of, ‘the curve’, and the desire to hike as little as possible,” added Montalto.
 
However, while Montalto pointed out that Nomura do not believe a rate hike is likely to be announced MPC tomorrow, they believe that the SARB will make a “soft pre-commitment on a November change.”
 
The decision to hike the repo rate or to keep it unchanged may be affected by the results of the Consumer Price Index (CPI), which are also being released on Wednesday, according to Montalto.
 
“With a moderately low CPI survey month, there is unlikely to be major cause for upset in the CPI that could drive the MPC, but any major upside or downside surprise could shift the needle slightly one way or the other,” said Montalto.
 
What would a rate hike mean for consumers?
 
If there is a rate hike on Wednesday, it will push up the cost of borrowing for consumers, as any type of loan (including credit cards and store cards) are based on the repo rate. In addition to this, the cost of food and goods would also increase as stores pass along the increase in their expenses.
 
A hike in the interest rate will also increase the cost of debt. This means that any consumers who are already struggling to pay off their debt will battle even more, while consumers who are only just surviving, will start to feel the burden of their debt.
 
Before taking out more debt to try and cover your expenses, speak to a financial advisor or debt councillor, who could help you better structure your finances to help you cope with your debt and the rise in cost of living.

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