When the South African Reserve Bank Monetary Policy Committee meets from 20 – 22 November to discuss whether to raise interest rates or not, their decision will affect everybody in South Africa.
“Up, down or stable, interest rates are a tug of war at the moment,” says Michael Barr, Chairman of Cullinan Financial Services. “On the one side you’ve got a campaign to push up interest rates and on the other side a campaign to keep them stable – or even push them down.”
Which way will they move? According to Barr, the decision comes down to different economic theories, and in South Africa’s tug-of-war economy, two different camps.
“The rand is weak, so pushing interest rates up theoretically makes it more attractive to invest in the rand,” says Barr. He adds that because inflation is starting to kick into play, pushing up interest rates would mean that people then spend less, resulting in less demand. “When there’s less demand, prices come down and inflation drops.”
In the other camp, pundits are saying that South Africa is in a recession, and in a recession, you need growth. “How do you stimulate growth? You drop interest rates to encourage people to borrow money and spend money,” says Barr. “So this camp is saying interest rates should not only stay stable, ideally they should come down.”
The question is, which move poses the highest risk to the country?
Barr cites an example from some 20 years ago, when the rand was plummeting and Governor Stals of the Reserve Bank kept pushing up interest rates. “The rand was sitting at 22 to the pound and the interest rates didn’t help it,” says Barr. “It’s only when the interest rate started dropping that the rand improved, which disproves the the old theory of artificially propping up the rand.”
At the end of the day, it’s the man in the street who most keenly feels the effects of a weak rand, high inflation and the recession. “Personally, I think that we should fix the economy,” says Barr. “If we fix the economy to the point where it’s pumping, and we’re out of the recession and unemployment is decreasing, the rand will improve by default.”
To this end, he states that Cullinan Financial Services is consciously aware of the plight that consumers, SMEs, and even big corporates are facing as a result of the weak rand, the recession, political uncertainty, inflation, and rising unemployment rates. “No matter what the interest rates are out there, we can set interest rates based on merit. We don’t have to increase interest rates as the banks do because as an independent finance provider, we’re not forced to play the interest rate game.”
“For us to be relevant in the market, within a tug-of-war economy, we always strive to do a fair deal,” he concludes.
For more information and highly competitive rates, visit https://cullinan.finance