Reserve Bank Deputy Governor Fundi Tshazibana on Wednesday said the country’s lower lending rate could stay for next two years.
Fundi Tshazibana was speaking at the Absa Annual Fixed Income Conference. She said the South African economy is likely to recover to pre-crisis levels at the end of next year or in 2022.
South Africa’s consumer inflation is likely to remain within the target range of between 3% and 6%. This will allow the Reserve Bank (SARB) to keep an “accommodative” rate stance for at least the next two years.
Interest rates have been cut by 300 basis points so far this year in an effort to help cash-strapped consumers.
“Baring materialisation of upside risks, this benign inflation outlook should allow the SARB to maintain an accommodative stance for most of the coming two years, and only withdraw stimulus in a gradual fashion,” Tshazibana said in a speech at the Absa Anual Fixed Income Conference, published on the SARB website.
Headline consumer price-growth has ticked up gradually in the months following the easing of strict lockdown restrictions, rising to 3.1% year-on-year in August having fallen to a 15-year low of 2.1% in May.
Tshazibana said the outlook for economic growth, which the bank sees contracting 8.2% in 2020, as well as that of the risk premium demand by investors to hold government bonds was uncertain, making an “equilibrium interest rate” difficult to achieve.
Lower inflation combined with the need to support the Covid-19 hit economy has seen the bank cut lending rates by 275 basis points since March to a record low.
What Can We Take From The Deputy Governor’s Speech?
We can definitely see that the road ahead of us is still long. That being said Tshazibana’s speech concluded by reassuring those listening that although time was needed to bring the economy back to normal the outlook was positive.
Tshazibana said the lockdown has forced many companies to adapt to different ways of work and of doing business, which, if implemented on a larger scale in the coming years, could boost production.
She pointed out that automation, e-commerce and remote working have a potential to play a greater role in economic activity in future.
What Does A Low Lending Rate Mean For You As A Consumer?
Repo rate reduction result in lower borrowing costs for you as a consumer. Essentially this increases your consumer spending capability.
Current debt expenses will be cheaper, meaning additional spending capacity each month. This will be the case provided your income was not affected by the COVID-19 pandemic.
Variable interest rate mortgage bonds will now cost less each month. This means more funds will be left in your account post debit order date.
If you are looking to purchase a new home, lower interest rates mean lower monthly payments.
Monthly car instalments will also reduce for current debt holders. This might also attract consumers to look at purchasing a new vehicle because of affordable interest rates.
Credit cards, overdrafts and personal loans linked to the variable interest rate will come down in cost. This will make short term borrowing more affordable.