Interest rates remain unchanged

The South African Reserve Bank announced yesterday that the repo rate would be unchanged and stay at 5,5%.

Following the Reserve Bank’s Monetary Policy Committee (MPC) meeting, central bank Governor, Gill Marcus, cited SA’s hesitant economic recovery and high inflation concerns for the move. The prime rate will remain at 9%.

Marcus added that the uncertainty and nature of the eurozone debt crises have impacted the exchange rates in emerging markets, according to the Business Day. Previous MPC meetings indicated signs of weakening in both the global and domestic economy alongside rising inflation here at home.

The repo rate refers to the rate at which the Reserve Bank charges retail banks when it lends them money, and the prime overdraft rate is the preferential rate retail banks charge their clients. This means that for indebted consumers, the cost of servicing debt will remain the same, while for those consumers who depend on interest income as their main source of income, the preference would be for higher interest rates.

To offset the effect of the interest rate, Tendani Mantshimuli, consumer economist at Liberty Retail SA, says consumers should invest in something that would not be eroded by inflation. “There are inflation-linked instruments out there, like an inflation-linked bonds. The best advice I can give is to talk to a financial adviser.”