Will the US Federal Reserve raise interest rates when their meeting concludes on Wednesday 14 December? According to Floris Slabbert, speaking on KykNet’s Groot Ontbyt, a 0.25% increase is likely. If the short-term interest rates are indeed increased, it will be the first increase in about 12 months. The last increase before that was in 2008.
For South Africans, a US interest rate increase is likely to mean that the rand will weaken, putting consumers under pressure as prices rise due to higher importing costs.
The Bank of England is also expected to make an announcement about interest rates in that country on Thursday this week. This shortly after the announcement that British consumer prices rose 1.2% in a year to November 2016, compared with a 0.9% growth in October and above market expectations of 1.1% gain. It was the highest inflation rate since October 2014, which some say is due to the decline of the British pound and continuing fears regarding Brexit.
In August, the country reduced its interest rates from 0.5% to 0.25%. It is therefore expected that interest rates will remain unchanged when the announcement is made later this week.
In the last year, the rand has gained 24% against the pound in the last year. Similarly, the currency gained 11% against the US dollar and 13% against the Euro. Bad news for investors overweight in rand-hedged investments during the past year. 2016 has proven again that investors should always work with a financial advisor to establish a balanced investment portfolio rather than making decisions based on sentiment alone. Balanced diversification remains the key to success even though 2017 may be another challenging year.
Investment advice for 2017
In addition to diversifying investment portfolios, Slabbert has the following advice for investors in 2017:
- Develop and commit to your investment strategy
- Minimise costs
- Consider the impact of inflation on investments
Watch the full interview: