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Rates: Consumers must watch out

Johannesburg - Consumers should plan ahead to meet all their financial needs as interest rates may rise, economists warned on Thursday.

The SA Reserve Bank (Sarb) announced the repo rate will remain unchanged at 5.5%, but sounded a warning of increases to come.

Chief investment strategist for Old Mutual Wealth, Dave Mohr, said consumers borrowing money now could be paying at least a percent more in interest by the end of the year.

"The economic circumstances are tough and consumers must watch out because job security is low," he said.

"I think consumers need to recheck their spending budget for the year because there is continued downward pressure on spending power from increased inflation."

He said it would be important for consumers to ensure they had enough money available to not default on financial commitments or savings products such as a pension.

Planning ahead

FNB CEO Jacques Cilliers urged consumers to act with care and to plan ahead for the remainder of 2014.

"The Reserve Bank has stated that its stance will remain accommodative to enable economic growth," he said in a statement.

"However, as inflation rises we expect rates to be adjusted upward. In doing so, the Reserve Bank maintains our effective rates on an even keel."

FNB chief economist Sizwe Nxedlana warned that the South African economy remained vulnerable to rising interest rates in the United States due to its large current account deficit.

The current account deficit

He said rising US rates would increase the difficulty of funding the current account deficit.

"This is likely to keep the rand under pressure and place further upward pressure on consumer inflation. Against this background interest rates are likely to increase further," said Nxedlana.

"A minor silver lining may be that with growth in credit extension and in government spending slowing, the magnitude of interest rate increases may not be as much as in previous rate hiking cycles."

He urged households to exercise "prudence in managing their household finances".

By Fin24