PREPARE FOR A SHOCK
Last week, the South African Reserve Bank’s Monetary Policy Committee (MPC) reduced the repo rate by 25 basis points, bringing the prime rate to 11%.
The interest rate cut came at the same time as Eskom’s 12.7% tariff increase for the year. This electricity tariff comes into effect on 1 April 2025.
With times as tough as they are, we are all grateful for the small mercies and reduction in interest rates which will lead to lower monthly instalments.
Hayley Parry, money coach and facilitator at 1Life’s Truth About Money, said the rate cut is good news for consumers who are paying off any kind of debt.
Parry explains: “Since September last year, it means that our prime interest rate is now down from 11.75% to 11%.
“So, what that means practically is that for every million rand that you owe on a home loan for example, your repayments have reduced by around R500 since September last year.
“Now this is good news for consumers repaying any kind of debt because it means that that debt is now less expensive and that is going to be important.
“Just a few minutes after the interest rate cut was announced, we heard that Eskom’s request for an increase in electricity tariffs has been approved and that the cost of electricity is going to increase by 12.7% from 1 April.
“What does that mean for us? Well, it means that any savings that you may have coming your way in terms of your cost of repaying debt quite possibly from the 1st of April will be going towards paying for increases in electricity.
“So that gives us a window in February and March where you can potentially put away a little bit of extra money to make repayment on your home or your car, your credit cards for example.”
She advised to put that money into an emergency fund, because you never know what could happen. But we definitely know that there’s a steep increase coming from the price of electricity from the 1st of April.
I am worried that even with the recent rate cuts, South African consumers cannot survive anymore.
The 12.7% electricity tariff increase is a significant leap in prices for communities and households, which are already buckling under pressure.
Lew Geffen Sotheby’s International Realty CEO Yael Geffen says a 12.7% increase in electricity costs would directly raise utility bills for households.
Geffen adds: “This could strain budgets, especially for low- and middle-income families who spend a larger proportion of their income on essential utilities.”
The financial trauma is not limited to South African consumers only. It affects manufacturers, retailers and, ultimately, jobs.
Theo de Jager, board chairperson of the Southern African Agri Initiative, said that the hike is a massive blow to irrigation, dairy, poultry, pig and fresh produce farmers
De Jager says: “Farmers currently spend about R10 billion per year on electricity and will now have to fork out an additional R12,7 billion for which they did not budget.
“This will negatively affect farm margins, which are already under pressure, and, in effect, economic growth and job creation.”
With farmers putting more money into produce, you can expect food prices to increase within one or two seasons following the increase.
Mr Jacques Moolman, President of the Cape Chamber of Commerce and Industry, has said that electricity prices have escalated by 1041% over the last ten years.
Moolman says: “I simply cannot wrap my head around this. With the prices of food, electricity and other basic necessities increasing the way they are, my optimism is low.
“I have to ask – can the ordinary South African survive?”