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THE LITTLE MENTIONED DOWNSIDE OF CUTTING INTEREST RATES: People who are saving, or those living off their savings like pensioners, for instance, earn less for their money when rates are reduced. Image: http://economictimes.indiatimes.com

Their views were made ahead of the Monetary Policy Committee (MPC) meeting tomorrow and Thursday.

Econometrix economist Laura Campbell was doubtful that the Reserve Bank would lower interest rates any further this year.

"Any further reduction of interest rates this year is likely to result in the inflation edging upwards," said Campbell. She said it was highly likely that lowering interest rates would encourage South Africans to take up more debt instead of saving the extra cash.

Figures released by the Reserve Bank last week showed that in the second quarter the household debt to income ratio stood at 76.3%.

This means that for every R100 earned, R76.3c goes towards servicing debt.

"There is a tendency in our economy that when interest rates are low, people take up more debt when they should be saving, servicing debt or both," she said.

The Consumer Price Index inflation for July stood at 4.9%. Statistics South Africa is due to release latest data on the CPI inflation tomorrow.

The repo rate, used by the Reserve Bank to lend to commercial banks, is currently sitting on 5%.

The prime lending rate, which banks use to lend to consumers, is hovering at 8.5%.

Eskom chief economist Mandla Maleka predicted that Reserve Bank Governor Gill Marcus will not move the rates.

Maleka said: "If rates are cut, the MPC would be ignoring inflationary pressures stoked by domestic fuel prices, the rise in global food prices and a cluster administered prices (which include energy tariffs).

"In case the MPC cuts the rates to boost demand, it would not help because this has not happened though the rates are at their lowest in more than 30 years."

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Wed May 22 01:20:06 SAST 2013 ::

Sep 18, 2012

Vhamsanda

I know that the government want to be seen to care for the poor. Lowering ridiculously could increase the already volatile household debt. Lower rates could also harm investments as investors see very little on their ROI.
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Sep 18, 2012

ndhandhazi

Big No!!! lowering interst will all South African. You want us to continue paying high instalments for low quality products and inflated loans. It seems you are a millionair.
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Sep 18, 2012

ndhandhazi

Biggest NOOOO! Lowering intests rate will help all south african's.
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Sep 18, 2012

Limpopoist

Seems too tricky ,lowering will not help becouse of CPI, seems like we are been screwed both way moos...
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Sep 18, 2012

Jenani

Lowering interest rates will cost a lot of jobs, pensioners like myself who live on interest have to make cuts somewhere as prices of everything are rising and cuts have to be made somewhere. The only option left to me if interest rates go down is to get rid of the help. My income has gone down by over 50% but my expenses keep rising rates, electricity and petrol. I live in a rural area and a car is a necessity not a luxury as there is no public transport. I have saaved all my life for a comfortable retirement which is fast disappearing. The interest on my savings does not even keep up with inflation. There is absolutely no incentive to save anything at all.
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Sep 19, 2012

CheeseBoy

the repo rate is 5 percent, the banks prime rate is 8.5 percent

people do you not see something wrong with that picture???

this means even if banks do not charge interest to us for loans they would still make a killing.

these banks are robbing me and you, the South African citizen more than the govt.
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Sep 19, 2012

CheeseBoy

The prime rate should be pegged by Govt to be no more than 1 % above the repo rate. who came up with that 3 percent difference?
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