What does no change in the repo rate mean for me?

It may not have come as a surprise that the repo rate has remained unchanged. It has been like this now for over a year. But it will still have an impact on your finances whether you are a borrower or a saver, says Angelique Ruzicka.

The repo rate has remained unchanged yet again. What’s going on?
You are right. The repo rate has remained unchanged at 5% per annum. South African Reserve Bank governor, Gill Marcus, felt this was a good idea given the ‘global uncertainties and downside growth risks’.

What else is Marcus concerned about?
Marcus pointed out several concerns in her 14 page speech. First up was the rand, which has seen much volatility since the previous MPC meeting, fluctuating between 9.55-10.50.

Inflation forecasts were changed too. The Bank now predicts that we can expect and average rate of inflation of 5.8% in 2014 compared with its original forecast of 5.5%. The forecast for 2015, meanwhile, has been raised from 5.2% to 5.4%. “The deterioration in the forecast is mainly due to changes in assumptions related to the exchange rate of the rand and petrol prices,” said Marcus.

Jobs and economic concerns were top of mind too. “Of great concern is the loss of jobs in the tradeable sectors of the economy,” said Marcus. “Over this period there was a loss of 23,000 employees in the mining sector and a total of 7,000 in manufacturing and construction sectors, while there was an increase of26,000 employees in the community, social and personal services industry.”

Strikes remain an important watch-point for Marcus too and she predicts that manufacturing output will be adversely affected by protracted strikes, particularly in the motor vehicle sector.

What does it mean for me?
If you have a home loan or any other form of credit linked to the changes in the repo rate this means that you won’t see your repayments go up. If you are a saver or a pensioner looking for income from your investments this isn’t great news as interest rates are at an all time low which has an impact on the interest you are likely to generate on your savings.

Great, so I can borrow more? It’s cheap to get a loan after all!
Not so fast. Yes interest rates have been flat for over a year but this doesn’t mean you should go out and get a loan for that R500, 000 sports car you’ve had your eye on and extend your home loan so you can build your man cave. Economists predict a rise in the second half of 2014. If you borrow money now will you be able to afford a rise in repayments should interest rates go up by say 0.5% or more?

Fine, I will not borrow more then. But surely I can spend more? I’ve got all this disposable income because my debt repayments are so low.
It’s always good to treat yourself but it would be wise not to overdo it. Lezanne Human CEO of FNB Investment Products, points out: “Interest rates are cyclical in nature and will not remain at this 40 year low. This low however, brings with it a decrease in the cost of servicing debt which means that South Africans actually have more disposable income. Consumers need to use this opportunity to save more towards their goals while the cost of servicing debt is still low.

“Consumers need to take advantage of this low rate environment. In the near future, when their disposable income decreases, due to the increase in the cost of servicing debt; such as home loans, car finance, credit cards and student loans; they may not be able to save as much,” she says.

I’m a saver and concerned that I won’t reach my savings goals, given the low interest rate environment.
You are right to be concerned. Commentators say you should therefore account for this and save even more than you have in the past. ““Many savings goals could have initially been calculated with higher interest rates in mind and it is therefore important that consumers reassess their goals to determine whether they are on track to achieving them,” advises Human.

Although it is difficult to predict what will happen to interest rates, the goals that consumers are saving towards have a finite time frame. Recalculating savings goals could therefore require consumers to put more money away in order to compensate for the lower returns they have received in the past year,” says Human.

So I should squirrel away my money while I can afford to, save even more if I find I won’t meet my future savings goals, while not being tempted to take out more loans in the event that interest rates rise?
That’s the general advice being chorused by financial experts. Of course there are always exceptions to the rule. If you can afford to take out more credit, now would be the right time to take them out. As an added precaution you can always take out fixed term loans. They are more expensive but at least you will know what you will be paying every month.