There is a good chance that the Reserve Bank may increase interest rates further this year, an economist said on Friday.
”The bottom line is that interest rates will have to rise,” ABSA chief economist Christo Luus said.
”This should reduce the growth in the uptake of credit in the economy, especially on imports, but will also benefit the inflow of short-term and trade-related capital into the economy, thus stabilising the rand.”
Luus was confident that borrowers will have to face hikes of only about 2% this cycle, compared with the previous interest-rate hiking cycles since the early eighties that involved increases of, on average, about 7,5%.
Effectively, the prime interest rate might then increase to 12,5% by early next year from its low of 10,5%, he said.
He said that high and rising current deficit could mean pressure on the rand, which, in conjunction with a number of other factors, might lead to inflation rising above the 6% target level.
Should the predicted interest rate come to pass, and in the light of inflation possibly rising even further, Luus advised consumers to plan and budget carefully when taking on additional debt.
He said consumers should base future calculations on the assumption that interest rates could rise even more than a further 1,5% percent over the next year.
If borrowers were experiencing difficulties in making payments on their mortgage or other debt, Luus advised that they talked to their bank and opt to have repayments restructured over a longer term.
He suggested that panic or uncertainty over future interest rate movements could be avoided by taking a mortgage at an interest rate that would remain fixed for a specific period.
He said that interest rate hikes could lead to some cooling down in the residential property market where prices have roughly doubled since 2003. — Sapa