Debate on interest rate hikes heats up

Cape Town - Fin24 users seem to be in two camps regarding economist Mike Schüssler's view that the prime interest rate could peak at 11% sometime in 2015.

Wollie Verstege commented that consumers always forget to take one thing into account, namely that higher interest rates also increase the cost of doing business.

"Interest rates actually increase the costs of many goods and services. I know, because I am one of those businesses increasing costs to you the consumer to absorb the interest rate increase," he commented.

"So, even though a pensioner may be getting a few rand more, the basket of goods you bought before the interest rate increase will actually be more expensive after the interest rate increase."

He says, in general, SA consumers are looking at a neutral to negative effect on buying power, especially if one factors in the compounding effect of interest rates across the value chain.

"Savings income from interest will never replace the lost purchasing power in the economy brought on by interest rate hikes," he concluded.

In the other camp are consumers like Fin24 user John Smith, who says "bring on the higher interest rates" since he would gladly take those kinds of returns on his investments any time.

"I am absolutely 'gatvol' (fed up) of living in near-poverty the past ten years because of low interest rates," he commented on Fin24.

"I've saved responsibly all my life and lived within my means just to get no reward and in return see my quality of living deteriorate constantly."

To him higher returns will mean "decent food, some new clothes and taking part in the economy again".

He even forsees being able to go on holiday for the first time in a decade.

"Yes, bring it on. Reward those who have saved responsibly all their lives for a change," he said.

"We don't have debt and should for once be recognised and rewarded - especially pensioners, who are suffering as a result of low interest rates after giving their entire lives to the economy."

Which of these views do you agree with and why? Let us know.

- Fin24