Tag Archive: Interest Rates

Weekly Thoughts 19 July 2019

Interest rates went down yesterday by 0.25%. For those of us paying off HP debt such as a house or car, it is a good idea to continue paying the same amount you have been paying. You might need to check what the payment difference is after the first month of change and then create the routine of paying the difference yourself each month, or see if your bank can keep the same debit order going for you. You will now be paying the capital off a bit faster than before. A good thing.

Weekly Thoughts 7 June 2019

I attended a day at Coronation’s Head Office in Cape Town this past week. We were a bunch of advisors meeting and listening to their clever people, the bosses and fund managers. They all have these funny words at the ends of their names: BBusSci, BScEng etc. I counted that they all have words made up of eight to 18 letters after their names. Some should probably add AdHd. The best speakers were the economist, she was informative and entertaining, and then the Chief Investment Officer himself.

In the evening they took us all out to one of those fancy restaurants where you choose from two items per course and where the food takes up 3 cm by 3 cm on a large plate. Way beyond my culinary culture. The KZN guys secured a table for ourselves at the dinner with our local consultant joining us. The fund manager who is the head of fixed interest also joined us and was sitting opposite me. Fixed Interest comprises the asset classes of Money Market funds and Bonds. A brief explanation: The Reserve Bank sets the interest rate for lending money in the country. Investment Managers can invest into various Bank’s Money Market funds and give you a rate of interest on your money. They also buy bonds issued by various corporates including governments. They might buy a bond that is to last for two years (the money stays here for two years) and the rate of interest paid to the bond holder is, say, 8.3% per annum, for example. These are fixed rates of interest. Hence the label ‘Fixed Interest’. These sort of assets will form a part of your Balanced Funds within your unit trust investments.

Anyway, so I was sitting opposite the guy who heads up this team at Coronation. A good guy. Much more fun at dinner than he was when presenting. There he was totally boring. I said to him that what us guys (ladies included in the term) listened to today, was information overload and that most of us would not have understood 50% of what they spoke about. On a deep technical level that is. I said that what is always important to me, is for me to get a feel that you know what you’re talking about and that you guys look after my client’s money in a very good and conscientious way. He got that. And this is what I came away with. That Coronation still does a very good job of looking after your money, have very clever people doing it, have a very stable staff complement and do what they are supposed to do well, never compromising.

As a teacher, the one problem I have is that most speakers don’t know how to get to the point and not go on for too long. But this is a skill they are not expected to have neither employed for. Just me being difficult!!

Interest Rates

The monetary policy committee did not put up interest rates this week. Good. But people getting income in the form of interest from cash don’t get an income increase. If rates go down, their income goes down. But remember, it is not the banks that pay you this interest. It is those of us folk who have borrowed money from the banks, (or via the reserve bank) who are paying off bonds and cars and education loans, who are paying you this income. We borrow at 10%, the bank gives you, the lender to the bank of your cash, 6%. For example. So, if someone living on interest in all or in part for income, wants the rates to go up, they are wishing it upon their children and friends and the public to pay more on their debt in order to provide more income.

I know I’m writing a bit, what’s the word – my English teacher client will no doubt correct me – obliquely here, but it is good for us to actually understand what the flow of income and borrowing is. If interest rates go down, the consumer pays a bit less for borrowing, thus has a bit more money to spend on consumer products, thus the consumer company makes greater profits, can then choose to increase their dividends to shareholders meaning increased dividend income to the investor. A better method of income generation and income increases.

When interest rates go down, the asset manager can do nothing but reduce the income they pay through to the investor. They cannot absorb the event or somehow keep the income at the same level.