How to combat the effects of a rising interest rate in South Africa
South Africa is a country alive with possibilities and resources. However, the economic situation in recent years could use improvements. The property sector has been faced with many challenges and homeowners are feeling the pinch. With rising interest rates and further increases looming, we look at how the everyday consumer can stay afloat with the current cost of living.
A domino effect
Individual households, businesses and government structures all feel the pressure of a rising interest rate. As it affects different parties, mitigating factors must be considered when changing negative focuses. Managing personal finances is crucial for homeowners to stay on top of high-interest-rate repayments. One strategy that may be used is to refinance existing debt at a fixed rate. This secures lower borrowing costs in the long run and safeguards you from further interest rate hikes. Consumers must also cut back on frivolous spending and invest in growing their savings. This will buffer against unexpected cash flow interruptions and increased payments.
You could also diversify your portfolio by accumulating assets that are exempt from interest rate payments. Having multiple streams of income is the only way to ensure a financial future free from debt. Dividend-paying stocks or real estate investment trusts are a good idea.
Business wise decisions
Small to medium enterprises in South Africa can stay ahead of the curve by renegotiating loan terms and fixed deposits. Longer repayment periods and secure lending can greatly reduce the risks associated with rising interest rates. If you are a business owner, look at how you can reduce the daily operational costs, while increasing cash flow and improving efficiency. This will not only help relieve the pressure of overheads each month but also make your interest rate payments seem unchanged. Equity investing, peer-to-peer lending and government subsidies (if you qualify) can also help during this time.
What can government do?
The macroeconomic situation of South Africa can be helped through the passing of certain laws and approvals of certain policies. One of the ways interest rate hikes can be reduced is to prioritise fiscal discipline and cut down on government-level borrowing and lending. This relieves some of the pressure on the South African Reserve Bank (SARB). The government should implement structural reforms to have a competitive economy. This results in higher productivity, an improved flow of money coming in and out of the economy and a healthy supply chain.
The SARB plays an integral role in the impact of rising interest rates. By employing a balanced approach to the monetary policy, the SARB can carefully consider the trade-offs between controlling inflation and supporting economic growth among households and businesses. Financial and property markets in South Africa would largely benefit from transparency in communication from the SARB, regarding policies. This will help manage expectations and control uncertainty among investors and those with monthly interest rate payments.
The far-reaching implications rising interest rates can have may be reined in with simple proactive measures. As an everyday citizen of the country, you can practice wise financial decisions and use the tools on offer to you to make smart property moves. With a combination of the latest information and guidance from our trusted property practitioners at Aska Property Group, you can't go wrong with your next investment. Contact us today to discuss your many options.
27 Feb 2024
Author Aska Property Group