Understanding South Africa's repo rate cuts: lifeline or debt trap?

South African households have endured the steepest borrowing costs in over a decade, and 2025 has finally brought some relief. The South African Reserve Bank (SARB) has cut the repo rate several times this year, bringing it to 7.00% as of 2 September 2025.

That’s down from its 2023–2024 peak and within a disinflationary backdrop where headline CPI eased to 3.5% in July 2025, still comfortably inside the 3% – 6% target band. Another MPC decision is scheduled for 18 September 2025, with markets split on whether further easing is prudent.

From FinFix’s vantage point, repo cuts can be both a lifeline and a latent risk. Lower rates reduce monthly instalments and free up cash flow, but they can also tempt households to expand credit, especially unsecured credit, recreating the very vulnerabilities rate relief is meant to ease.

The household balance sheet: relief, but still stretched

SARB’s latest Quarterly Bulletins show a nuanced picture. Household debt-service costs fell slightly to 8.9% of disposable income in late 2024, reflecting earlier stabilisation, while household debt ticked up to 62.7% of disposable income in Q1 2025. In other words, consumers are servicing debt a bit more easily thanks to lower rates, but they remain highly leveraged by historical standards.

Credit dynamics warrant caution. TransUnion’s 2025 research points to rising personal-loan delinquencies and higher card balances, even as lenders tighten across some risk bands. And consumer sentiment surveys show a growing share of households worried about meeting obligations in full. These behaviours can quickly erode the benefits of rate cuts if new borrowing outpaces the savings from lower interest costs.

Short-term relief vs. long-term risk

Rate cuts are already easing the pressure for many South Africans. Lower instalments on floating-rate mortgages and vehicle finance provide immediate relief. This freed-up cash can be channelled towards accelerating principal reduction, allowing households to pay off debt faster and reduce long-term interest costs. At a broader level, SARB data shows that debt-service ratios have improved, giving households a buffer against potential income shocks and unexpected expenses.

At the same time, risks are quietly building beneath the surface. As repayments fall, consumers may feel “richer” and increase their use of unsecured credit, yet unsecured lending remains costly, and even small increases in revolving balances can compound into significant future obligations. Payment complacency is another concern: instead of using the savings from lower rates to deleverage, many households may redirect this extra cash to consumption, leaving debt levels largely unchanged. Added to this is the risk of inflation surprises. While inflation has cooled in 2025, Statistics South Africa data shows that fuel and food prices have been volatile, rising month-on-month in mid-2025. Such pressures could slow or even reverse the current easing cycle, exposing households that have overextended themselves during this temporary reprieve.

Use lower rates to get out of debt faster

FinFix’s counsel is simple: treat lower rates as a window to build resilience, not a signal to spend more. One smart way to use lower rates is to lock in a repayment floor. By continuing to pay the same instalment you did before the cut, the extra money goes directly to your loan principal. Even holding payments steady for a year after a reduction can shave months off a mortgage term and cut overall interest.

Households could also tackle expensive debt first. Channelling savings from lower instalments into credit cards or personal loans, where rates remain steep, creates immediate relief.

Another safeguard is to rebalance between variable and fixed exposure. If budgets are tight, fixing a portion of a mortgage or keeping a stronger emergency buffer in an access bond helps cushion against future rate hikes or inflation surprises.

It’s equally important to stress-test your budget. Keep planning around last year’s higher instalments and direct the difference into debt prepayments, an emergency fund, or essential cover like insurance. This creates a buffer against unexpected costs such as load-shedding, fuel spikes, or employment shocks.

Finally, households should monitor their debt-service ratio. With the national average near 9% of disposable income, according to the South African Reserve Bank, aim to keep your own ratio lower by paying down variable-rate balances during this easing cycle.

Policy direction: What to expect in Q4 2025

SARB’s easing bias in 2025 has been data-dependent: inflation has cooled, and growth remains tepid. Markets expect caution from here, especially with global policy uncertainty and oil price risks. As of early September, repo sits at 7.00%, and a modest probability of one more cut is priced around the September 18 meeting, contingent on inflation and growth prints.

Bottom line for indebted households

Rate cuts are a lifeline if you use them to de-leverage, and a debt trap if you use them to borrow more. With household leverage still elevated and unsecured stress visible in delinquency data, 2025’s easing cycle is the moment to reset household finances: hold instalments steady and manage high-rate debt.  If SARB delivers another small cut in Q3/Q4, view it as a bonus.

* Coetzee is the CEO of FinFix.

PERSONAL FINANCE