With inflation rising to the highest level in four months, the interest rate is expected to remain unchanged after next week’s second interest rate announcement for the year. So consumers will probably have to wait longer before they see light at the end of the tunnel.
Riaan Grobler, head of advisory services at Everest Wealth, warns that inflation that continues to rise and interest rates that are expected to remain unchanged for longer do not bode well for consumers with debt.
“It was expected that the interest rate could start lowering in May. This could possibly change if inflation continues to rise and moves further away from 4.5% where the Reserve Bank wants to see it anchored.”
The interest rate is expected to be lowered only in the second half of the year, perhaps only in September, after it has already risen by 475 basis points since November 2021 and remained unchanged for the past months.
Inflation increased to 5.6% in February from January’s 5.3% and December’s 5.1%.
“It was expected that inflation would slow further this year, but numerous local and global factors still seem to create risks that could keep inflation high,” says Grobler.
The US Federal Reserve kept interest rates unchanged this week and it is expected that the European Central Bank (ECB) will do the same in April. Interest rate cuts are expected to be possible only by June. Switzerland’s central bank this week became the first major Western central bank to start lowering interest rates.
Meanwhile, consumers will continue to be under great pressure with less disposable income, more debt repayments and rising living costs. The average salary in the country also does not increase at the same rate and is not enough to counter inflation; South Africans are getting poorer and poorer.
“Lower interest rates will undoubtedly help support business and consumer confidence and boost consumer spending. However, South Africa’s logistical constraints, power crisis and water and infrastructure problems still pose major risks to the economy. The upcoming election also poses a risk due to various scenarios that may arise from its outcome.”
