Sarb: Stable rates will boost saving

Adiel Ismail
2013-07-16 14:50
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Households saved an amount of R72bn, indicating a savings rate of 1.7% over five quarters to June, according to the Reserve Bank. (Shutterstock)
Cape Town - The South African Reserve Bank (Sarb) is hoping to encourage South African households to save by maintaining financial stability and low inflation.

"Our savings ratio for the household sector at least is really on the low side," warned South African Reserve Bank (Sarb) head of economic reviews and statistics, Johan van den Heever.

Households saved an amount of R72bn, indicating a savings rate of 1.7% over five quarters to June, according to the Reserve Bank.

"Our greatest thing which we can do for the public is to provide financial stability and low inflation," said Van den Heever.

"If you have that stable environment, it helps people to plan and they can then see that the purchasing power of their money is maintained and is not dwindling so much through inflation that it becomes senseless to save."

Van den Heever explained how big fluctuations in interest rates affect the behaviour of consumers.

When interest rates surge, people who have cash in the bank generally start to spend the additional interest they earn on their money.

Subsequently, when interest rates come down, consumers find it difficult to scale down because they have higher consumption habits.

A similar scenario is observed when rates decline, said Van den Heever.

"If interest rates go very very low, then those who have borrowed previously now suddenly have a great relief of cash flow and they start spending more.

"When interest rates normalise later on, it creates circumstances where it is difficult now to refrain from so much consumption so the overall national savings ratio suffers from that".

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Savings expert Simon Brown said there is no direct research about the influence of low rates on the savings behaviour of consumers, but he suggested that it does impact the pocket.

"Low interest rates discourage savings as people feel they're not getting enough bang for their buck," said Brown.

In spite of rates being at or below inflation, Brown advised South Africans to maintain a savings habit.

The Reserve Bank implemented a policy to cushion South Africans from volatile interest rates, said Van den Heever.

He said since 2000 the Reserve Bank has moved into the area of inflation targeting, which moderates the decisions of the monetary policy committee (MPC) when it sets interest rates.

The MPC's running target for inflation - which it has set at between 3-6% - forces it to think two years ahead, so it is not swayed by the most recent market movements, said Van den Heever.  

He said inflation targeting reduces volatility which helps consumers not only to plan and save better, but also to have healthier consumer patterns.

Brown added that the Reserve Bank's policy helps consumers more directly.

People like predictability but would prefer a stable rate at higher levels, said Brown.

Economist Arthur Kamp said maintaining a relatively low and stable inflation rate over time is the best contribution Sarb can make to growth.

"High and volatile inflation hinders the efficient allocation of resources and can have a ruinous impact on an economy," said Kamp.

 - Fin24

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