Consumers urged to use rate pause to tighten belts

2016-05-20 07:38
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Cape Town - Consumers should use the small window of opportunity to build a solid financial foundation before interest rates rate go up again.

This is according to Ester Ochse, channel head at FNB Financial Advisory, in reaction to the SA Reserve Bank's (Sarb) decision on Thursday to leave the repo rate unchanged at 7%. This means the prime lending rate stays at 10.50%.

She said the breather in the interest rate hike cycle should be seen as an important catalyst for consumers who are committed to investing their way out of tough economic conditions.

Ochse warned that there is a chance that interest rates could go up again sometime this year. "That is why there is a need to use the small windows of opportunity such as this one, to build a solid financial foundation. With financial discipline, it’s possible for consumers to maintain a stable financial position which allows them to invest or save,” she said.

Ochse reckons things are unlikely to get better in the short-term. She, therefore, encouraged consumers to continue to closely monitor household budgets, cut back on unnecessary and excessive spending, keep debt under control or try to pay debt off as quickly as possible and maximise every chance to invest or save.

She cautioned that SA’s economic outlook remains relatively unstable, citing that signs of tough times can be seen in the quarterly jobs figures that show the economy lost a number of jobs and by default, income. Equally the inflation basket shows that the price of basic goods remains relatively high.
 
FNB CEO Jacques Celliers, pointed to signs that consumers are indeed cutting back, which offered enough breathing space for rates to remain on hold.

"Lower spending, for example, is worrying and indicates fading consumer confidence. Under these conditions, lenders and borrowers remain cautious with new credit. Yet we are seeing sustained affordability of new loans from consumers with secure incomes,” said Celliers.

Sizwe Nxedlana, chief economist at FNB, said although the Sarb decided to pause on hiking rates, their statement remained hawkish. Upside risks to inflation from global and domestic sources were, for instance, emphasised.

"While the recent data flow is supportive of the decision not to raise rates, the short-term inflation outlook is not rosy. Inflation is likely to accelerate in the latter part of this year peaking above 7% in December," warned Nxedlana.

"However, inflation is most likely to decelerate thereafter. Following this logic there is some scope, albeit limited, for further rate hikes into the peak of consumer inflation later this year.”

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