The South African Reserve bank, under governor Lesetja Kganyago, has announced an interest rate increase from 6% to 6.25% confirming that the country is in a rising interest rate cycle. This prompts the question as to how South African’s who are already under financial pressures are going to deal with this especially when it comes to their investments and saving. Jeanette Marais, director of distribution and client service at Allan Gray, discusses what is important to know when saving in a rising interest rate environment.
The South African Reserve bank has announced an interest rate increase from 6% to 6.25%. While inflation remained relatively unchanged in October, the Monetary Policy Committee noted that it is likely to trend up, due to the depreciating rand, the worsening drought conditions and its likely impact on food prices, and the possibility of additional electricity price increases.
Remember to account for inflation
While a higher interest rate environment may ensure a better return on one’s hard-earned rands, inflation, if not taken into account, can have a devastating impact on one’s savings. Rising interest rates must be looked at in conjunction with inflation, to ascertain the real impact on one’s savings.
Many people think that the cash that they put away will grow by the interest rate. But, they fail to account for the eroding effect that inflation has on their savings.
