Yesterday, the South Africa Reserve Bank governor announced that interest rates would be raised by 50 basis points meaning that the prime interest rate that we borrow money from the banks goes up to 15%. If this is not torture then I do not know what is. It is said by some that the increase in the rates is a way to try control inflation which is running away into the sunset. There is no denying the fact that inflation in South Africa has to be controlled but is the Central Banks target of having inflation being between 3 - 6% realistic?

Currently the inflation stands at 9.4% and this is before the proposed electricity price hike by Eskom. If Eskom get the go ahead to increase the tariffs by 53% then it doesn’t take a brain surgeon to see that inflation will continue to go up. And based on this current trend being adopted, if inflation goes up, the only way it can be controlled is to increase interest rates so that people stop spending more. I think this is a ‘text book’ solution and it is time we stop using ‘text book’ tools to solve the problems in South Africa. There are factors beyond our control which are contributing to rising inflation such as high oil and food prices being experienced by the rest of the world. The Central Bank governor called for us to ‘tighten our belts’ so that we do not spend more. It seems like we are in for a rough ride and gone are the days of spending freely in South Africa without worrying about how much you spending. Many people had gotten used to the ‘culture’ of having dozens of credit cards and just swiping them at will. I don’t think this will be possible anymore unless you are really rich. Many people all going to fall deep into the debt trap and I fear with the way rates are going up, they may not be able to free themselves. I think the ‘Repossession’ people are going to be extremely busy now as those failing to repay their debts will start having their assets taken away from them.

We are set for some really tough times now and it is time to ‘tighten your belt’ as our governor said. No more spending like there is no tomorrow, butI think many will find this hard to do as they had gotten used to a certain lifestyle. My advice to people like that, “Just stop it!!!”

Subscribe

Sign-up to receive the latest updates from InTheNews.co.za to your mailbox

Loading ...