SA Reserve Bank rate cut offers relief to consumers

South African consumers were given some reprieve this past week as the South African Reserve Bank lowered interest rates in the country. 

Sarb Governor Governor Lesetja Kganyago announced that the central bank's Monetary Policy Committee (MPC) voted to cut the repurchase rate (repo rate) by 25 basis points (BPS). 

This means the repo rate will decrease from 7.25% to 7%, effectively taking the prime lending rate to the country to 10.50% from 10.75%.

Kganyago said that the decision was unanimous by the MPC members. 

"For policy, as we showed last time, lower inflation allows for lower interest rates. In our Quarterly Projection Model, for a 4.5% objective, rates bottom out around 7%. By contrast, the forecast for a 3% objective has roughly five more cuts, over the medium term, taking interest rates slightly below 6%. The logic of the model is that interest rates need to fall as inflation eases, to prevent the inflation-adjusted rate, or real interest rate, from rising too much. Real rates are nonetheless temporarily higher for a 3% objective, and there is a modest growth sacrifice, which helps anchor expectations at lower levels," the Sarb Governor said on Thursday. 

Frank Blackmore, Lead economist at KPMG said that that the repo rate was reduced because the stronger rand helped moderate inflationary pressures.

"Although there is some increase in food price inflation, headline inflation is seen by the bank to come in at around 3.3% for 2025. One of the most interesting statements made by the governor of the Reserve Bank at this MPC announcement was that the Reserve Bank will start to aim at the bottom of the inflation target range which is at 3% as their inflation target going forward," Blackmore told Business Report. 

"There are several benefits to lowering that inflation target from the current 4.5% to the 3% level. Firstly, the core inflation remains close to 3% instead of reverting back up towards 4.5%. However, expectations will take a while to come down to this 3% level as well. Secondly, there will be further rate cuts on the 3% target scenario. The governor mentioned up to five more possible cuts, this would lead us to level of around 5.75% on repo or 9.25% prime," Blackmore added. 

"This would lower the borrowing costs and support the strength of the Rand. Reducing inflation to this level is an exciting prospect going forward," Blackmore said.

Meanwhile,  Neil Roets CEO of Debt Rescue said that the latest repo rate cut offers little real relief for millions of South Africans battling financial strain.

Roets said, "Consumers are facing a looming crisis, as both global and local economic pressures combine to hit household budgets even harder. “What’s coming could make the challenges of recent months look mild by comparison. A major concern is the 30% tariff hike on South African exports, which took effect on Friday, 1 August."

“This is not just a trade issue, it’s a direct threat to consumer financial stability,” Roets added.

“Sectors like agriculture, wine, metals, vehicles, and manufacturing are all at risk. The knock-on effect will be felt in rising costs for food, fuel, and other essentials, along with job losses and business closures,” he said.

“Consumers are expected to survive under impossible conditions. Their budgets are stretched to the last rand. Hope has been their only lifeline — and even that is beginning to fade,” Roets said.

He warned that the current wave of economic setbacks could be the final blow for millions.

“We’re not just talking about financial strain anymore — we are staring down the possibility of widespread social unrest. The warning signs are clear, and urgent action is needed.”

“My advice to those who have fallen into a debt trap is to seek help from a registered debt counsellor who can assist them to manage their financial predicament. This has been a very successful solution for thousands of consumers who are plagued by over-indebtedness,” Roets said. 

BUSINESS REPORT

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