Expert advice on how to benefit the most from the repo rate cut
Clive Eggers, the Head of Investments at GTC, chats to us about
what the repo rate cut means for ordinary South Africans and how consumers can benefit
the most from it.
On Thursday, 18 July, the Reserve Bank announced a repo rate
cut of 0.25%.
“The MPC unanimously decided to reduce the repurchase rate by 25 basis points to 6.5% per annum,” said South African Reserve Bank Governor Lesetja Kganyago at a media briefing in Pretoria on Thursday.
What does the repo rate cut mean?
“The repo rate is the rate at which banks can borrow money from the Reserve Bank. Why does that matter? Because that ultimately has an impact on the interest rate that banks charge people when people want to borrow money,” says Clive.
“Any debt that you have should benefit from an interest rate cut. The only exception to that is if you fixed your interest rate,” says Clive.
Clive adds that although the cut isn’t very much “it does indicate that the Reserve Bank has taken cognisance of the fact that the South African economy and the South African consumer is struggling in the current environment. South Africa had a negative GDP number in the first quarter and businesses are not doing well. Unemployment is high and South Africans, in general, are struggling in that environment.”
“Interest rates can cause further trouble. They can make it difficult for debt to be repaid and they make it difficult to grow the economy. So, by lowering the interest rate, which is what the Reserve Bank did, they effectively are lowering the cost of borrowed money, and so that enables business to borrow and individuals to borrow more cheaply,” says Clive.
He adds that the cut is “a positive thing. It has to be seen in the light that South Africans really struggling from an economic point of view.”
READ: Simple yet effective ways to save money
How to benefit the most from the repo rate cut
Clive says businesses can use the relief “to fund projects and new ventures that would require hiring people and causing the economy to grow and more people to be employed.”
“As far as the man on the street is concerned, this affords the opportunity for those customers that are really struggling or those consumers that are really struggling to keep their heads above water in terms of paying down their debts, this will make it a little bit easier to pay down their debts.”
“It will also allow individuals to borrow more cheaply if they needed to,” says Clive.
However, he cautions against taking unnecessary debts.
“Obviously, what they have got to be careful of is not using the lower interest rate to fund purchases that aren’t absolutely necessary,” he concludes.
READ: Expert advice on dealing with loans
Image courtesy of iStock/ johan10