What is an MPC meeting and how does it affect you?

The ins and outs of this week’s interest rate decision at the Monetary Policy Committee meeting

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) is meeting this week to discuss and review the country’s current level of interest rates. Having announced a hike of 25 basis points in its previous meeting last year in November, all eyes will be on whether the MPC will raise interest rates further today.

Jeanette Marais, CEO Momentum Investments, says that the outcome of this announcement will impact all South Africans in one way or another. “The MPC meets every two months to discuss movements in the economy and the Reserve Bank’s position on the interest rate. Simply put, if interest rates are raised, the cost of debt becomes more expensive and South Africans’ pockets tend to become tighter.

“As such, investors tend to become more risk-averse when interest rates rise. This is because the cost of any repayments on existing debt will increase accordingly, which will typically leave people with less disposable income and decrease average national spending.

“Slower national consumer spending is generally viewed as bad for the economy, which usually means lower corporate valuations and, ultimately, poor performance from equities and many other ‘riskier’ investments,” Jeanette explains.

However, a rise in interest rates is not necessarily bad news to everyone, says Jeanette. “Higher interest rates are positive for people who have savings or investments that are linked to the repo-rate. This is because their savings will earn interest at a faster rate, which will result in higher returns over time.”
Regardless of whether interest rates are raised this week, Jeanette urges South Africans to keep their spending and debt in check over the coming months. “The SARB signalled in November that rates may be raised three more times before the end of 2020, in increments of 25 basis points (a basis point is one hundredth of a percentage point used to express differences in interest rates).

“So, whether or not interest rates remain unchanged this week, do your best to repay your current debt and avoid taking on unnecessary future debt to ensure you’re not further negatively impacted by any future interest rate hikes that may lie ahead,” Jeanette concludes.