In the third quarter of 2024, the Bank of Botswana once again lowered its lending rate.
After a few years of high inflationary pressure and rising rates, interest rates have now turned a corner. This has implications for spending and investing money. How should falling interest rates affect money decisions?
Key takeaways in this article, include:
- interest rates have dropped by a further 25 basis points to 1.9%
- this will have positive and negative outcomes for investors
- investors should find investments that take advantage of lower interest rates.
The good news – and the bad
Lower interest rates are usually considered a good thing. Repayments on debt such as home loans come down, easing financial strain.
However, lower interest rates affect investments too. A lower overall interest rate means the interest earned on cash investments is lower.
Retirees relying on interest earned from investments may see a decrease in their income.
However, a lower interest rate also means lower inflation. This usually means less pressure on the average household as grocery, accommodation and transport costs ease.
Falling interest rates in Botswana: ways to benefit
A lower interest rate can open up new opportunities to save and invest. Below, we look at ways to take advantage of lower interest rates in Botswana.
Invest in real estate
A lower repo rate means lower interest rates on home loans, making this a good time to invest in property.
If you do invest, avoid taking out extra debt to cover transfer duties. You’ll end up with two debt repayments that will increase if interest rates go up.
Property companies and developers also benefit from an interest rate cut. More people invest in real estate and take advantage of lower repayments.
Consolidate your debt
If you have more than one debt repayment, you can save money by consolidating your debt into one loan with a lower interest rate.
Alternatively, you could pay off more debt each month. Paying off debt faster puts you in a stronger financial position going forward.
Lower repayments
Lower debt repayments create an opportunity to start saving. Put the difference between the old and new repayment into long-term investments, such as retirement annuities, unit trusts or bonds.
If the interest rate comes down, you can invest even more. If it goes up, you’re still in a better position than before.
Invest in bonds
Bonds become a better investment option when there’s a repo rate cut. Interest returns on cash investments fall, but bonds are usually in higher demand.
Bonds are also referred to as debt investments or fixed-income investments. Investors who buy bonds are essentially lending money to corporations or the government in return for regular interest payments and the return of your capital on the maturity date.
Lamna is a short-term asset-based lender in Gaborone. We offer loans against a range of movable assets including cars, gold, jewellery, luxury watches and more.
Apply online now for a fast and discreet loan with Lamna. Keep an eye on our blog for future Botswana money advice.
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