'Cut interest rates now!'

Follow up article on last week’s article

Interest rates must be cut by two percent, Consumer Assist, South Africa's biggest umbrella organisation of debt counsellors, said on Tuesday.

Debt was growing rapidly and putting an increasing strain on consumers, banks, retailers and other financial institutions experiencing the highest levels of consumer debt ever, said Andre Snyman, CEO of Consumer Assist, in a statement.

Snyman joined economists and debt counsellors in calling for an urgent cut in interest rates of up to two percent – or 200 basis points.

Snyman said an interest rate cut would help those at risk of losing homes or cars to hold onto them.

"Many consumers need just a little leeway and they can manage... the economy can't afford the sort of terrible debt many consumers and companies now find themselves in," Snyman said.

Snyman said that debt counsellors were concerned by the increasing levels of very heavily indebted people of all income levels.

"We have people who used to be millionaires to those working as teachers, nurses and police officers who simply can't cope anymore.

"They're not paying school fees which is causing difficulties with the financing of schools," he said.

He added that severely indebted consumers suffered health problems.

"Those who are severely indebted are depressed, so their productivity is low and health problems high.

"Those people in sensitive jobs also become more prone to fraud or corruption...

"If interest rates are not cut soon, (there will be) the knock-on problems of seriously indebted people – namely fraud, corruption, low productivity, poor health, marital problems and general depressive conduct."

Snyman said it was interesting to note that alcohol and cigarette sales were high "and that is typical of bad economic times, people often become increasingly self destructive".

A rate cut would not lead to overspending, he added, "simply because prices are high at the moment, people are fearful of losing their jobs and are more likely to save if they have a little spare cash".

He said the National Credit Act had proved to be a blessing.

"Most of those experiencing financial stress now were overspending before the Act came into effect in June 2007."

According to Snyman, it took an indebted consumer three years to clear debt.

"The first consumers who applied for debt counselling in 2007 when the NCA came into effect, will only be clear of debt in June 2010 at the earliest. "

Snyman said economists had warned that the second and third quarters of 2009 were likely to be "tough".

"We are starting to develop a pressure-cooker economy with the rate of bad debt and the Reserve Bank needs to release some of the pressure by urgently cutting interest rates."

Sapa

Article from: www.iafrica.com