An early gift for SA's consumers

The Reserve Bank’s Monetary Policy Committee (MPC) gave South Africans an early gift, cutting the repo rate by 50 basis points (0,5%) just weeks before Christmas at their final meeting for 2010. The repo rate now stands at a new record low of 5.5%, which will see commercial banks’ adjusting their lending rates to the public, i.e. prime and variable mortgage rates, from 9.5% to 9,0%.

While some analysts did expect this rate cut on the back of the lower inflation in producer prices, together with a slowdown in consumer price increases, consumers and role players in the property industry are amongst the most pleasantly surprised by the MPC decision.

Even as the interest rate reached lows not seen in South Africa in decades, consumers continued to struggle with tight budgets and high debt in 2010. The property industry, although showing encouraging signs of improvement, remains constrained by the tight lending criteria of the banks and the affordability of property. This interest rate cut will indeed bring affordability into the reach of many more South Africans, which could provide a welcome boost to the property market.

Interest rates are expected to remain stable for some time and even to increase in 2011. Consumers should therefore consider the impact of interest rate increases when making decisions regarding spending and entering into longer term credit agreements, particularly over the festive season, when it is more tempting than usual to overspend and enter into credit agreements.

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