Prime Interest Rate Increase
*Updated 25 May 2023
As the cost of living increases, many people will be concerned about changes to their finances. So what does a further 0.5% hike in the base rate mean for your money?
Savings
Those with cash in the bank are likely to see a very small rise in savings rates - however, the best savings deals will almost certainly be reserved for longer-term fixed rates.
Bonds
First-time buyers will be among the most heavily impacted by the rate hike. To get onto the property ladder, they often need to borrow the maximum amount available and are faced with higher interest rates as a result of high loan-to-value borrowing.
Cost of living
However, a rate rise should lead to a stronger Rand, something that matters to the overall strength of the South African economy.
Our Reserve Bank has set an annual inflation target of between 4 to 6%. According to Stats SA, in June of 2022, the inflation rate reached a 13-year high, registering at 7,4%. Something had to be done. We have all seen prices rising across the board, from fuel to food, and this is a worldwide phenomenon caused by the shortages of supply that have resulted from the COVID-19 pandemic and more recently the Russian invasion of Ukraine. Inflation is therefore rising worldwide, and interest rates are also increasing worldwide.
If other countries raise their interest rates, they become a more favourable investment destination for foreign capital. Keeping our interest rates at the same margins vis a vis these foreign countries therefore also protects our country against disinvestment and helps to stabilize our exchange rates.
Based on these factors, it looks probable that interest rates will continue to rise for the foreseeable future before settling.