Turning Lower Interest Rates into Smarter Investing Opportunities

The world’s largest economy is on the path toward interest rate cuts, with Federal Reserve Chair Jerome Powell signalling caution but acknowledging the likelihood of policy easing ahead. His remarks, though measured, were enough to spark a rally in shares as investors welcomed the prospect of lower borrowing costs. 

The signal highlights the uncertainty facing monetary policymakers as they balance slowing inflation with fragile growth. Globally, central banks are expected to follow a similar trajectory, shifting toward rate cuts to stimulate demand and support economic resilience. This renewed focus on interest rates will shape borrowing, saving, and investing decisions worldwide.

Interest rates are the cost of borrowing money, or the return earned on savings and investments, expressed as a percentage. They play a central role in shaping how individuals, businesses, and governments make financial decisions. 

When someone takes out a loan, the interest rate determines how much extra they will repay over time. Similarly, for savers, interest rates dictate the return earned on deposits in savings accounts or fixed-income investments. Because they influence both the cost of borrowing and the reward for saving, interest rates are one of the most important tools used to manage economic activity.

Are Interest Rates Fixed? 

Rates are not fixed permanently; they are adjusted monthly by central banks in response to changing economic conditions. Depending on whether the economy is overheating with high inflation or slowing down with weak growth, a central bank may pause, increase, or cut rates. 

• Raising rates helps to cool spending and borrowing, reducing inflationary pressure. 
• Cutting rates makes borrowing cheaper and aims to stimulate investment and consumer activity. 
• A pause is often used when policymakers want to observe whether previous rate moves are having the desired effect before deciding on the next step.

FYI - When describing policy stances, the terms “dovish” and “hawkish” are used. A dovish stance signals support for lower interest rates to stimulate growth and employment, especially when inflation is stable. A hawkish stance, by contrast, signals a preference for higher rates to control inflation, even if it slows growth. Central banks often shift between being dovish or hawkish depending on economic conditions.

Where is South Africa with Interest Rates

In the South African context, the South African Reserve Bank (SARB) recently cut interest rates, given that inflation is within its official target range of 3% to 6%. For months, higher inflation had kept borrowing costs elevated, as the SARB aimed to prevent price increases from spiralling out of control. 

With inflation showing signs of stabilizing within the target, policymakers had room to ease financial pressure on households and businesses by lowering the repo rate. This move was designed to support economic growth while ensuring that inflation remains under control.

What Does This Mean for people Saving and Investing 

• For savers: Lower interest rates could feel discouraging because they reduce the returns on money kept in bank savings accounts and other low-risk instruments. The cut means that the interest earned on deposits will shrink, eroding the incentive to hold large amounts of cash in savings - often leading to people seeking out alternative investment options, such as equities, bonds, or property, where returns may be higher, though often with added risk.
• From an investment perspective: Lower rates are intended to encourage both individuals and businesses to put money to work rather than keep it idle. Borrowing becomes cheaper, making it easier to finance new projects, buy homes, or expand businesses.

Equity markets often benefit because investors shift away from low-yielding savings accounts toward shares and investment vehicles such as ETFs (exchange-traded funds), which can provide both dividends and capital growth. Property markets also tend to respond positively, as lower mortgage rates reduce the cost of home loans, improving affordability for buyers.

Balancing Growth and Stability Through Lower Rates

At a broader level, the SARB’s decision reflects the balancing act central banks must perform, ensuring price stability while supporting economic activity. By cutting rates when inflation is contained, the Reserve Bank signals confidence that inflationary risks are manageable while trying to stimulate demand. For the wider economy, this could translate into increased consumer spending, higher levels of business investment, and a more supportive environment for job creation. However, the full impact of lower interest rates depends on how consumers and businesses respond, whether they choose to spend and invest, or remain cautious despite the cheaper cost of money.

Turning Everyday Spending into Investment Opportunities

Whether you bank with Discovery, Capitec, or anywhere else, EasyEquities gives you access to shares, ETFs, and government bonds. For Discovery and Capitec clients, our partnerships make it even simpler by linking investing directly to their everyday banking apps.

This creates a dual opportunity: enjoy the benefits of everyday spending while also building long-term wealth through a mix of growth-focused shares and the stability of bonds.

Government bonds offer a reliable way to earn fixed income by lending money to the government in exchange for regular interest payments. 

Dividends are one of the many key components of investing, representing a share of a company's profits distributed to its shareholders. 

Special dividends, also known as extraordinary dividends, are one-time payments made by companies to shareholders due to specific financial events, like windfall profits or asset sales.