Steady interest rate; more savings

The South African Reserve Bank (SARB) left the interest rate unchanged at the Monetary Policy Committee (MPC) meeting yesterday, 26 March 2015.

Following the announcement First National Bank (FNB) confirmed that they will also keep their prime lending rates unchanged at 9.25%.

The SARB governor, Lesatja Kganyago, highlighted that, “Since the previous meeting of the MPC the near-term inflation outlook has deteriorated with the partial reversal of the recent petrol price declines, emerging upside pressures on food and possible further electricity tariff increases.”

Therefore, even though the interest rate is remaining the same, consumers should still watch their pockets, due to other price increases such as petrol and electricity tariffs.

However, there was also some more cause for concern, as the growth outlook was revised from the last MPC meeting.

“It was clear that the Monetary Policy Committee (MPC) is worried about the growth outlook – they lowered their near-term potential growth rate from 2.5% to 2% – but remain focused on the inflation target,” said Investec Asset Management.

Investec added that the Rand-Dollar exchange rate was also a concern for the MPC.

Consumers to come under pressure

“Unfortunately, consumers may come under increasing pressure during April and they should take great care when taking on new loans,” said Celiiers.

Also the SARB is expected to return to the path of gradual interest rate tightening in the short term, said Sizwe Nxedlana, chief economist at FNB.

“The decline in the value of the Rand and a likely reversal of the downward trend in inflation rates may nudge the SA Reserve Bank towards a rate hike later in the year,” said FNB CEO Jacques Celliers.

Kganyago mentioned that there could be an increase in the future towards the end of his presentation.

“The timing of future interest rate increases will be dependent, as before, on a range of domestic and external factors. The MPC will remain vigilant and will not hesitate to act in order to maintain the integrity of the inflation targeting framework,” he said.

More room for savings

Despite the increase in petrol and electricity tariffs, the lower interest rate allows consumers to put away some more money into savings.

“While interest rates remain low this is an ideal time to make extra contributions to your savings, especially with the tax free savings opportunities created by government and tax free accounts now offered by FNB. Our customers could also speak to our investment advisors for further guidance on investments, including offshore products,” said Celliers.