How the Reserve Bank (SARB) Decides on South African Interest Rates
Interest rates are the amounts charged and payable for monies loaned over a period of time for certain things and it is also the “extra money” earned by the lender in exchange for their financial aid. The South African interest rate is also influenced by international factors some include the fact that a higher interest rate encourages international investment.
In turn, with a hike in interest rate it will result in an increase in mortgage bond repayments, or other asset loan repayments, however, it may have benefits. The South African interest rate tends to rise often and as mentioned above, certain countries increase their interest rates in order to create favourable markets for foreign investment; this is more prevalent as is with the case of SA due to its low saving ratio.
Why change interest rates down?
Factors that will encourage lower interest rates include but are not limited to factors such as the following:
- Stronger national saving effort
- Tightening of public sector finances
- Strengthened currency
- Slow bank credit extension growth
- Inflation rate decline
- Inflation rate and levels within other countries worldwide
How does the SARB make the decision?
The Reserve Bank of South Africa utilises aspects such as the repo rate which is the interest rates charged to commercial banks to lend money, as well as its “open-market” policies. Inflation rates will be predetermined each year and the open market is also influenced by the “bitter-sweet” relationship between bonds and interest rates.
In essence everything works within relation to each other, the country’s economic status, employment rate and macroeconomic variables to name a few, which in turn will relate to how the SARB will influence the South African interest rate or the quantity of money within the country.