Consumer spending during the last quarter doubtless contributed to the Reserve Bank’s decision to keep the interest rate on hold (along with the inflation outlook, of course). But over-indebted consumers won’t be thrilled. According to Luke Hirst, managing director of DebtBusters, the number of defaults on home loans and vehicles is still too high and unsecured lending is also a problem.
“Interest rates are still extremely high, with South Africa having the second-highest real interest rate in the world after Brazil,” Hirst said. “We have the scope to move rates downwards to reduce the average household-debt ratio of 78%.”
The real worry is that South Africans probably spent heavily on credit last quarter. So spending has been funded by short-term debt (store cards and credit cards).
“In the year ending September 2010, there was a 26% increase in the number of short-term credit accounts granted,” said Hirst.
The message is clear — we consumers are our own worst enemy. Might the interest rate have been cut had we not taken on more credit to overspend last quarter?
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