While the South African Reserve Bank (SARB) announced a cut in the interest rates this past week, many are asking if it was too late and too little.
SARB cut its repurchase rate (repo rate) by 25 basis points, to 8% a year, following seven-consecutive meetings at a 15-year peak of 8.25%.
This means the prime lending rate will decline from 11.75% to 11.5% per annum, bringing some respite to debt-burdened consumers.
This also marked the SARB’s first policy easing since the Covid-19 pandemic in mid-2020 as the annual inflation rate slowed to a three-year low of 4.4% in August, below the SARB’s 4.5% midpoint target level.
While the decrease in interest rates will bring some relief to consumers in the country, many have been contending with the cost-of-living crisis, finding it difficult to make ends meet.
Brina Biggs, the senior manager at Budget Insurance, said: “Our first rate cut since May 2023 and its been a long time coming, as we have been following the economy, inflation pressures specifically. It should be the start of seeing decreases going forward. It has been a hard couple of years for South Africans, with the high cost of living, debt and unstable electricity and global economy, but seeing lower petrol prices, stable electricity and post-elections increasing business confidence, the outlook is less grim.
“As South Africans start breathing a small sigh of relief, it is more important than ever to stay the course, keep to your budget and use any additional funds to pay off any additional debt you have accrued.”
Hayley Parry, a money coach and facilitator at 1Life’s Truth About Money, said: “They say good things come in threes and, on the financial front, it certainly seems to be ringing true with consumer inflation dipping below the SARB’s target of 4.5% down to 4.4% in August and the news of the US that the Federal Reserve had cut its key lending rate by half a percentage point.
“If you have a R2 million bond at prime plus 1% last month, you would have paid R23 145 for your home loan repayment. With this interest rate cuts, you’ll be paying around R22 790 – a saving of around R353. As we head towards Tuesday’s Heritage Day public holiday, now would be a great time to spend some time thinking about your financial heritage.
“Use this rate cut as a jump start to giving your finances a spring clean because it’s the perfect timing to do so.”
Debt Rescue CEO Neil Roets said it was too little, too late for SARB Governor Lesetja Kganyago to pull South Africans out of financial ruin.
“While any relief is welcome, this small reprieve will not make any significant difference in the lives of over half of the South African population (55%) currently living in poverty,” Roets said.
“It will also do little to nothing to pull the middle class out of the financial ruin that is the final consequence of indebtedness. People have reached the end of the road, and they have nowhere left to turn. It is time to heed this ticking time bomb – before it’s too late.”
BUSINESS REPORT