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Interest rate cuts – The end of the free lunch

Last week the Monetary Policy Committee (MPC) announced another interest rate cut by 50 basis points, the fourth rate cut since the start of 2020. While this is good news for borrowers, and those in debt, lower rates is bleak news for savers, especially for those living off their savings. How can long-term investors make the most of their savings given this environment?

“Unfortunately, for savers who are invested in cash instruments, such as money market funds, lower rates decrease their future return opportunities,” explains Mark Dunley-Owen, portfolio manager at Allan Gray. “It may be time to consider adding exposure to other asset classes. This is hard to do, especially in current times, and more volatile assets do not suit everyone. But investors with a reasonable time frame should benefit from owning bond and equity assets at current prices.”

Click here to read more of Mark’s comments about the –

Reinvestment yields on money market instruments that have fallen from approximately 7.5% at the start of the year to 4.5%.
New opportunities that open up as others close.
South African equities; and
Future returns that will be more in line with the low risk nature of such investments.

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