Absa advises investors to lock value

Investors should now seriously consider fixing their investment interest rates and locking in value says, Keith McIvor, general manager, Product and Pricing at Absa.

The advice comes in the wake of this week's much-debated Monetary Policy Committee (MPC) decision not to further raise the Repo rate.

"The MPC decision could signal that interest rates may be closed to peaking" says McIvor.

"The current prime rate level - as well as 12-month fixed deposit rates offered by banks - is at the highest it has been since 2003, indicating that this could be the ideal time for investors to fix their investments and secure a stable high rate of interest into the future.

"This consideration applies particularly to investors who need to earn predictable and high returns in order to cover living expenses, as well as to those who want to preserve and grow their wealth," he says.

McIvor points out  that high, stable interest rates are important to senior citizens, who constitute the bulk of fixed deposit investors.

"Over 75% of the balances on our fixed rate offers are contributed by clients aged over 55 and almost two thirds of whom choose a 12-month investment term."

Senior investors are an important market for Absa and customers aged over 55, who deposit up to R100 000 for 12 months or longer, qualify for an additional 0,5% interest over and above the prevailing fixed deposit rate.

"With interest rates currently much higher than a year ago, now is a very good time for any investor to open a fixed rate account," says McIvor.

"It can be done with as little as R1 000, has no restricted maximum investment and, may be fixed for any period from eight days to 60 months."

However, Christo Lus, Absa chief economist cautions that, notwithstanding the positive outlook for interest rates, there is still a possibility that upward pressure on inflation could cause interest rates to rise further." However, what is clear is that this up-cycle is not going to be nearly as intense as cycles since the 1980s, when interest rates rose on average by 7,8 percentage points."

"Despite the MPC 's upbeat tone, the risks to inflation as a result of the volatile rand, food prices and international oil prices remain. Moreover, the current account deficit could also still impact on the rand. While the repo rate had been kept unchanged and expectations have been raised that interest rates may have peaked, the risk of further rate hikes remains."