We can’t afford interest rate hikes

After listening to the Reserve Bank Governor, last week, I became really concerned about the state of our economy, let alone my local investments

Robby P.

In fact, I am making a concerted effort to move my investments offshore.

The fact that interest rates were left unchanged this time is, however, good news for anyone paying off a bond, car or credit card.

The reasons behind the Reserve Bank not raising rates are quite concerning.

When Reserve Bank Governor Lesetja Kganyago addressed the media, last week, his preamble to the interest rate decision painted a gloomy picture, to say the least.

I picked up on some key phrases from the Governor’s media briefing that I’d like to bullet point, simply to highlight the true state of South Africa as a business.

The current “state” of our economy affects absolutely everyone, from pensioners to investors, so, hopefully, this rather negative piece will help you, my fellow Benonians, to address not only your personal finances, but also your current or potential investments.

Here are some of the points from the “horse’s mouth” and the way I see it in “plain English”

•“The outlook going forward created a chance for us to press the pause button in the cycle”

Simply put, what this means is that we, the ordinary consumer, cannot afford any more rising costs of living, and that includes debt.

“Pausing” on an interest rate hike only means the noose around our necks is just not going to get tighter this time.

•“Recovery is expected to be weak – 0 per cent growth expected in 2016”

Zero per cent growth!

What the Governor is actually saying here is that our economy has stopped breathing and the patient is currently on life support.

•“Spending by households also contracted in the first quarter”

We – the “households” – are already feeling the pinch of stuff getting more expensive and we simply cannot afford as much as we did last quarter.

“Contraction” implies that we are able to buy only what we can afford and that means we get less for the same money.

•“Private sector employment contracted during the first quarter”

So not only can we buy less with the money we earn, but companies are struggling to afford the staff to pay who buy the stuff that’s getting more expensive.

Business are retrenching, not hiring.

•“Risks to inflation forecast remain on upside though”

Food inflation rose 11 per cent and goods inflation rose 6.7 per cent.

We are losing 11 bucks for every 100 we spend at our local grocery stores!

It’s costing us more to eat and live and they are “expecting” the cost for us to eat and live to go even higher.

On the up side, our currency has strengthened 11 per cent and next month we should get a sizable reduction in the fuel price, so those of us who are fortunate enough to have a job can still afford to drive to work.

As you may have picked up, I am frustrated with the “state” of our economy, the supposed “powerhouse” of Africa.

I find it difficult to conceive how we ended up in this position in this land of opportunity – but we are.

It’s not all doom and gloom, however, and I do believe that there are green shoots and that the cycle will turn.

Our local manufacturers seem to have turned the corner and it has to relate to some jobs being added as well some better “consumer confidence”; it’s just going to take time.

Besides wearing sunscreen, the best advice I can offer you now is to reduce your debt and try as hard as you can to deploy more of your dwindling cash into an investment, or at least try to start saving and investing.

You have to make an effort to beat inflation.