No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels. The prime lending rate will remain at 10.25%, while the repo rate stays put at 6.75%. While the Rand has strengthened, and inflation has largely been contained, the MPC remains cautious in their approach and bias towards upside inflationary risks.
According to economists, there are a few things in the medium term that could negatively impact the economy, which is why the MPC has aired on the side of caution. The recent surge in the oil price could present an inflationary risk, and all eyes are on the upcoming February budget which could bring tax hikes. Rating agency, Moody’s is also set to announce its decision on the country’s credit rating, which is being reviewed for possible downgrade. These aspects could affect the economy and once again bring about inflationary concerns.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that while interest rates remain favourable and stable, homeowners should try and place themselves in the best possible financial situation to be able to mitigate any economic changes in the future. “A steady low-interest rate gives consumers the opportunity to create an emergency fund that will see them through any financially challenging times they could face the future. It is also an opportunity to reduce their level of debt before another hiking cycle,” he says.
Goslett adds that periods of interest rate stability also provide homeowners with the opportunity to budget and possibly pay extra into their bond accounts to reduce the amount of interest paid, as well as reducing the term of the loan. “If a homeowner has a bond of R1 million at the current prime interest rate of 10.25% over 20 years, and they paid an additional R500 into the bond every month, they will reduce the term of the loan by almost three years, and they will save R221 106 in interest,” he explains