Banks react to interest rate decision

“With growing concern that our economy may grow slower than expected in 2014, consumers should use the present stable rates environment to reduce debt,” said Jacques Celliers, CEO of FNB.

The bank continues to forecast rates hikes later in the year.

“Consumers should act with care and plan ahead for the remainder of 2014” said Celliers.

“Despite Sarb’s decision not to raise interest rates [this time] we think it is only a matter of time before interest rates are raised further,” said Sizwe Nxedlana, chief economist at FNB.

“Domestic inflation is now above the upper limit of Sarb’s 3% to 6% target. We expect inflation to accelerate further and to remain above 6% for the rest of this year.”

He said the South African economy also remains vulnerable to rising global interest rates given its large current account deficit, which has been placed under more pressure by the impact of labour unrest on platinum production and exports so far this year.

“Rising US rates will increase the difficulty of funding the current account deficit,” said Celliers.

“This is likely to keep the rand under pressure and place further upward pressure on consumer inflation.”

He said the magnitude of the interest rate hiking cycle may not be as severe as previous cycles given current weak economic growth.

“Nevertheless, we urge households to exercise prudence in managing their household finances and to ensure that they are able to meet their monthly obligations at higher interest rates,” he said.

Vehicle sales

WesBank has welcomed the decision to keep interest rates unchanged.

“With today¹s decision the interest rate remains at record low levels, and will continue to lend support to the new vehicle sales market,” said Rudolf Mahoney, head of research at WesBank.

A 5.1% decline in new vehicle sales has been recorded for 2014 year-to-date, compared to the same period in 2013.