16 May 2011
Consumers should not commit to huge home and car loans to take advantage of low interest rates, as these are expected to start rising at the end of 2011, Gavin Opperman, chief executive of Absa Retail Bank, said on Thursday.
“Consumers should bank the savings that they have realised on their vehicle and mortgage finance instalments since the reductions of interest rates began in 2008 and reached their lowest levels in more than 30 years,” Opperman said in a statement.
He was responding to the SA Reserve Bank’s announcement that the repo rate would remain unchanged at 5.5 percent. The prime rate would stay at nine percent.
Don’t give in to temptation
“Even though the SA Reserve Bank’s Monetary Policy Committee (MPC) decided to leave interest rates unchanged at their second meeting for 2011 which ended today, consumers should not be tempted into lavish spending as levels of indebtedness remain high.”
Opperman said the rate cuts since late 2008 up to late 2010 had caused vehicle and mortgage finance to become more affordable, impacting positively on vehicle sales and property transactions.
However, food and fuel price hikes, together with other inflationary pressures, could lead to an increase in the repo rate towards the end of 2011 and in early 2012.
“As a result, consumers should live within their means, making use of a budget of income and expenses, eliminate unnecessary spending on luxury and non-essential items, saving on a monthly basis, and paying cash for purchases where possible,” he said.