"The last rate hike was in June 2008 when rates reached 15.5%. Since then, we have had almost five years of falling and stable rates," says Jacques Celliers, FNB CEO.
"Many of our peer countries have already hiked rates in expectation of further reductions in US Federal Reserve QE programme. They have done so to ensure domestic economic and currency stability. We encourage our consumers to set aside additional amounts in their budgets before mortgage and other payments fall due at the end of the month. The rate-hike is positive news for investor's dependant on interest income; they have struggled under declining and stable rates in recent years."
Sizwe Nxedlana, FNB chief economist adds, "Despite fragile economic growth, muted core inflation and the fact that inflation expectations remain reasonably well behaved the SARB raised interest rates to restrain rising inflationary risks. The risks to inflation facing the SARB stem from the weak rand. Sustained rand weakness could place significant upward pressure on inflation and raise inflation expectations. By raising rates today, the SARB has chosen to reduce inflation risks pre-emptively in order to protect long-term price stability and household purchasing power. Households should budget wisely in anticipation of further interest rate increases."
The increase, however, is quite a momentous occasion for those savers who waited in anticipation for a higher return on their cash investments.
"This increase however brings with it an increase in the cost of servicing debt, which means that many South Africans will have less disposable income than before," says Lezanne Human, CEO, FNB Savings and Investments.
Although savers will be excited about the increased return on their cash investments, the higher cost of servicing debt may result in consumers cutting back on their savings.
"Unfortunately, saving for goals, such as your child's school fees and your retirement, can't be delayed. Consumers should adjust their budget accordingly (however painful that may be in the short term) to ensure that they continue to save for these life events that will inevitably happen. The good news is that - while making sacrifices by saving for these goals - consumers are simultaneously benefiting from higher returns on their cash investments," concludes Human.
