SARB cuts interest rate: too late for South African households?

While the South African Reserve Bank (SARB) announced a cut in the interest rate this past week, many industry leaders have said it is a little too late and the decrease in the rate was not enough.

SARB Governor Lesetja Kganyago on Thursday announced that the central bank will cut the repo rate by 25 basis points, meaning rates will drop by 0.25%.

This means that the repo rate will come down from 8% to 7.75% while the prime lending rate decreases from 11.50% to 11.25%.

The MPC announced its first cut in interest rates earlier this year in September, making it the first cut since 2021, which saw the rate increase by 475 basis points, that took the repo rate to a 15-year high of 8.25%, where it settled until the first rate cut in September

Brina Biggs, a senior manager at Budget Insurance, told Business Report that annual consumer inflation for October came in at 2.8%, down from 3.8% in September, making it the lowest since June 2020.

“We must note that this low inflation is largely driven by fuel price drops, the drop in food prices and the rand’s strength as well as global pressures and potential shifts in US policy will keep the economy muted as we navigate the uncertainty the future holds. But as inflation is a core metric that the MPC has consistently reiterated that needed to get below the 3 - 6% inflation target band, the 25 basis point cut was expected and predicted by economists,” Biggs said.

“We can expect to enter into the cutting cycle but potentially a subdued one at that. This welcome relief though might be too late for some after years of high interest rates and cost of living but for those that have hung in there, now it is more important than ever to get back to more money than days in a month, and to stick to your budget and start building an emergency fund to avoid bad expensive days that can teeter your finances further,” Biggs further added.

Neil Roets, the CEO of Debt Rescue, said this should sound the alarm among the country’s leaders if nothing else does.

“Regardless of the economic factors, ordinary South Africans continue to bear the brunt of the highest interest rates the country has experienced in over a decade, along with relentless increases in living costs, a water scarcity crisis that is rapidly escalating and a seasonal drought which could seriously impact food crop quantities as we head into the festive season,” Roets told Business Report.

“The Governor made good on his promise of embarking on a slow rate cutting cycle that started in September this year, the first cut in over four years; his announcement of a second repo rate cut in November, explaining that easing inflation rates in October and a rallying rand influenced the Reserve Bank’s decision,” Roets said.

“While it is a step in the right direction, it should come as no surprise that this small drop in borrowing costs will make no discernible difference in the lives of millions of struggling households across the country. It will most certainly not put food on the table of millions of families in need,” he added.

“While I understand that global factors like conflict contribute to escalating food prices, there are factors like the repo rate and food price monitoring that, when managed, can relieve the confluence of pressures on consumers,” said Roets. “Much more urgent action is needed, especially from the major retailers who benefit from high food prices,” Roets further said.

Roets cautions that a growing number of people are resorting to short term loans and credit facilities to get through the month, trapping them in a vicious debt cycle that is not easy to break.

“My advice to those who find themselves in a debt trap is to seek help through debt review, where a registered debt counsellor can assist you to manage your financial predicament. It is never too early to ask for help,” Roets further said.

Property

Meanwhile, Antonie Goosen, the principal and founder of Meridian Realty, sees the rate cut as a positive step for both consumers and the property market.

Rate reduction offers much-needed relief to South Africans struggling with their monthly repayments. Homeowners with bonds linked to the prime lending rate will see slightly reduced repayments. For instance, on a bond of R1 million, this cut could save homeowners around R150 per month—a small but significant amount, especially as families prepare for holiday spending.

The rate cut also creates fresh opportunities for prospective buyers. Lower borrowing costs make homeownership more accessible, and for first-time buyers, it might be the perfect incentive to enter the market. Additionally, motivated sellers eager to close deals before the year ends could present great opportunities for those looking to purchase property.

The lower interest rate could also stimulate activity in the property market, with more buyers likely to enter the market in early 2025. Sellers could benefit from increased demand if their properties are well-priced and ready for sale.

While the rate cut offers optimism, Goosen said consumers must keep an eye on global economic challenges, such as a stronger dollar and restrictive monetary policies abroad, which could impact future rate decisions. He advises South Africans to remain cautious and focus on building financial resilience.

BUSINESS REPORT

• Chief Editor’s Note: South African banks reap rewards as high interest rates burden the poor

• SARB takes a cautious approach as global economic pressures weigh on interest rate decision

• SA Reserve Bank cuts interest rate ahead of festive season