INTEREST RATE RISES BY 0.5% TO 5.5%


Investing & Money
piece written on the 29th January 2014 by  

18 months ago the South African interest rate was dropped by 0.5% if I’m not mistaken, and now today it has been pushed up 0.5% leaving us effectively where we were a year and a half ago. Of course, nobody wants to see a rise in interest rates, 0.5% might not sound bad, but it certainly does hit the bottom line quite sternly.

I’m not too clued up on interest rates and the likes, so please don’t go with everything I say and make sure you do your own research. But, what I like to do is look at some real examples to understand the effects of an increase:

  1. If you have a bond of R1,000,000 that you’re paying off over 20 years your monthly repayments will be around R8,678 at an interest rate of 8.5%. With the 0.5% increase, your interest rate would now be 9% and this equates to a monthly repayment of R8,997. That’s an increase of R319.
  2. If you’ve taken a loan for a car valued at R200,000 over a period of 54 months, you’ll be paying it back at roughly R4,552. With the increase in the interest rate your monthly repayment would go up to R4,600. A R48 increase per month.

One of the main ideas, from what I understand, is that the hike would ease pressure on the Rand’s performance against the Dollar, Pound and Euro. Reports say that there has been a decrease of around 2.62% but the numbers are still not looking great as at 19h00:

  • Rand/Dollar = 11.2
  • Rand/Pound = 18.55
  • Rand/Euro = 15.31

It’s down a little bit, but not much!

rand-dollar

The All Share index dropped 160.08 points leaving it at 45,564.62 and the Top 40 dropped 110.58 to 40,974.52. Share and Currency data provided by BFA McGregor with a 15 minute delay.

Some say you shouldn’t be scared of emerging markets, but it’s hard to remain optimistic with what the numbers are saying. Here’s to hoping that the Rand will recover over the not too distant future.

Now’s a good time to start doing a budget if you’ve been putting it off!