This has increased the prime lending rate from 8.5% to 9%, putting financial strain on those who are servicing debt, such as commercial property repayments or revolving business credit.
Elize Giese, head of FNB commercial investments, believes that it also presents an opportunity for those who have savings or investments. "Investors are likely to benefit from a rate hike, as it influences the interest they could earn on their savings. This is the perfect time to revisit one's investment strategy with a view of unlocking potentially far better returns.
"Even though the chances of earning higher interest are possible during this cycle, investors should take note of the investment periods they commit to. Longer-term investments tend to offer higher returns but this may not be the best option during a rate increase cycle. The plan should be to keep funds liquid in order to take advantage of increasing interest rates."
She adds that investors should take comfort from current consensus among economists, which suggests that the South African Reserve Bank (SARB) is likely to increase rates by as much as 1% during the course of this year.
"The potential increase is largely due to ensuring manageable levels of inflation and to shield the economy from the impact of a weaker Rand. Investors should use this period to carefully plan their investment strategy and reconsider the amount of liquidity they are willing to sacrifice in order to earn better interest," concludes Giese.
