First interest rate hike predicted

FMCG SUPPLIER NEWS

Fin24.com - Nov 22nd, 08:36

Johannesburg - The first interest rate hiking by the South African Reserve Bank (Sarb) will most likely only be in 2015, according to John Loos, FNB's household and property sector strategist. 

Sarb announced on Thursday that it will keep its interest rate policy unchanged at 5%, implying that banks will keep their Prime Lending Rate unchanged at 8.5%.

It is FNB's view that economic growth will improve mildly in 2014 and 2015, after a forecast 2% for 2013.

This would contribute to a mild building of inflationary pressures, resulting in the first interest rate hiking starting in early-2015, according to Loos.

The household sector debt-to-disposable income ratio is projected to decline only marginally, to around 73.8% by the end of 2015.

"This ongoing high level of indebtedness requires that the next interest rate hiking cycle is a very moderate one, as it keeps the household sector highly vulnerable," said Loos.

"Indeed, we expect the interest rate hiking to be moderate, but it would be a good thing for households not to take this for granted, and to use the remaining time to build good financial buffers."

This means that interest rates have remained at the same level since August of 2012.

Loos said FNB believes that the current interest rate stances helps to promote a relatively stable more-or-less sideways movement in the household debt-to-disposable ratio in the near term.

It also promotes a similar direction for the household net savings rate, and a housing market largely free of “bubbly” behaviour in the near term.

"While such stability can be seen as a positive, what current interest rate levels are not doing is promoting any meaningful improvement in the household debt and savings ratios," said Loos.

"And both of these ratios remain at extremely poor levels by our historic standards."From Fin24.com