Could Interest Rates Drop Below 10% Soon?

Posted by Gino S on July 23, 2010 // 1 Comments

Interest Rates were keep unchanged yesterday, leaving the prime interest rate at 10%. The announcement has increased speculation that we may experience another rate cut later this year.

The inflation rate, overall economic growth, and levels of household debt are some of the factors that were considered by the South African Reserve Bank, before making their interest rate decision.

Currently, at below 5%, inflation is well within the targeted band of 3% – 6%. This would support a cut in interest rates.

But, household debt levels on the other hand are relatively high and lower rates would spark more consumer spending.

Also, excessive wage demands by the labour unions, and higher electricity costs are excepted to put upward pressure on the inflation rate. This is believed to have been the deciding factor in keeping interest rates unchanged for the moment.

Most economists are now predicting that we may see our first interest rate hike in the middle of 2011, while there is a small chance that rates could drop slightly later this year.

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