Interest rates at 28 year lows
The latest interest rate cut by the SARB brings interest rates down to the lowest level they’ve been in 28 years.
The prime interest rate is currently touching a 28-year low, which was equaled briefly in April 2005.
Before that the last time South Africa had interest rates lower than what we have now was in February 1981.
If you’d like to see a graph of the prime interest rate in South Africa, since 1948, you can check out this page.
Interest rate turning point
I suspect that interest rates will not be cut any further and that the SARB may very well start hiking interest rates again in 2010, to combat inflation.
Even though the latest inflation figures indicate that inflation is coming down, the year-on-year CPI inflation rate for June 2009 of 6.9% is still outside the SARB’s 3% to 6% target inflation band.
Furthermore, inflationary pressures are building.
Most notably, the cost of electricity has increased and is likely to continue increasing dramatically.
Eskom was granted a 31.3% tariff increase for the 2009/2010 financial year. There are well-founded rumors that they will apply for similarly scaled tariff hikes in 2010 and again in 2011, to fund their expansion program and build new power stations.
Apart from the rising cost of electricity, unions are currently negotiating 10%+ wage increases with employers and the oil price has gone up.
Golden opportunity to pay off debt
If you currently have debt, this is a great opportunity for you to pay off as much of it as is possible.
Realize that, even though we currently have historically low interest rates, they are very likely to start rising soon.
Now is the time to use any spare cash you have to pay off your debts and save yourself the pain and suffering when interest rates start to rise again.
