The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has decided to cut the interest rate by 25 basis points for the fourth quarter of 2024.
The repo rate was cut by 25 bps and will fall from 8% to 7.75%. This means the prime lending rate will also drop from 11.5% to 11.25%.
The repo rate had been on a 14-year high before the MPC made a much needed cut in September. This had placed significant economic strain on debt-stricken South Africans for a prolonged period of about four years.
There was hope that the Reserve Bank Governor, Lesetja Kganyago and the MPC would give South Africans a 50 basis points cut as we head into the festive season. This would have seen the prime lending rate drop 11% and the interest rate fall to 7.5%.
Kganyago said that MPC decision to only cut the interest rate by a modest quarter percentage point was unanimous.
“The committee agreed that reducing the level of policy restrictiveness is still consistent with achieving the inflation target,” he said.
On future decisions the Governor said that he MPC would like to emphasise that its decisions will be made on a meeting-by-meeting basis, with no forward guidance and no pre-commitment to any specific rate path.
“Such decisions will continue to be outlook dependent, responsive to data developments, and sensitive to the balance of risks to the forecast.”
Debt in South Africa
Meanwhile, the much needed rates cut comes as strained South African consumers enjoy some respite with the interest rate cut and the impact this will have on their debt burden, there are a huge proportion of South Africans who have high amounts of debt.
According to the DebtBusters’ 2024 Debt Index, South Africans earning R35,000 or more a month spend 68% of their income on debt repayment.
“Debt-to-income ratios for top earners are at or near the highest-ever levels. For people taking home more than R20,000 a month the ratio is 128%, and for those earning R35,000 or more it is 167%”.
The index found that compared to the same period in 2016, people who applied for debt counselling had significantly less purchasing power.
The research found that since 2016 nominal income has increased marginally by 2% but the cumulative impact of inflation was 46%.
The debt company said that this means that today’s pay packet buys 44% less than eight years ago.
“On average, these consumers need 62% of their take-home pay to service debt,” according to the Index.
The researchers noted that on average, unsecured debt levels were 12% higher than in 2016.
“For those taking home R35,000 or more, unsecured debt levels were 38% higher than eight years ago,” according to the index.
Consumer inflation
Yesterday, consumer inflation in South Africa dropped to its lowest in four years in October.
Statistics South Africa (StatsSA) said that the consumer price index (CPI) increased by 2,8% in the 12 months to October 2024.
“This represents a sharp decline from 3,8% recorded in September. October’s print is the lowest since June 2020 (during the Covid-19 pandemic) when the rate was 2,2%,” StatsSA said.
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