In South Africa, along with our usual burdens, one of which is continued load-shedding, we also have to contend with seemingly ever-increasing interest rates. Last week, the South African Reserve Bank elected to increase interest rates again. This was the seventh consecutive increase in the previous 12 months, leaving interest rates above pre-pandemic levels.
High inflation can negatively impact society as it erodes our purchasing power, which means that our money is worth less – we can’t buy as much as we previously could with the same amount of money. Because of these consequences, the SARB needs to step in to alleviate this pressure, and they do this by raising interest rates.
The interest rate is basically our “borrowing cost” so we experience the effects of it in many different aspects of our lives. For example, interest rates influence the way we spend and save money.
In terms of our personal investments, as businesses experience low growth and, as a result, decreased earnings, their share price may be impacted, which can negatively affect the value of our investments. For fixed-income investments, high interest rates are great because we are the receivers of this interest, but rising rates negatively affect the price of the investment.
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