Reserve Bank cuts interest rates by 0.25% as prospects improve

THE outlook for consumers seems to be looking up, with inflation set to stabilise towards the end of the year, interest rates coming down, and a rand that has settled within a more predictable range.

- NICOLA MAWSON

On Thursday, much as expected, South African Reserve Bank (SARB) governor Lesetja Kganyago announced that the interest rate would decline by 0.25 percentage points, dropping prime to 10.25%.

After holding rates steady at the previous meeting, the Monetary Policy Committee's unanimous decision takes the total decline in rates between last September and now to 1.25 percentage points.

"This will lower the repayments on all sorts of debts, from credit cards and personal loans to car finance and mortgage bonds," says Stephen Whitombe, MD of the FIRZT Realty group.

According to Thys van Zyl, CEO of Everest Advisory Services, the reduction is both a psychological and an economic lifeline for indebted households.

"This cut is good news for households that have been under severe debt and cost pressure over the past two years. It provides direct financial relief, improves cash flow, and sends a positive signal that inflation remains under control," says Van Zyl.

The cumulative drop since the rate-cutting cycle started means that, on a R1 million mortgage at prime, the monthly repayments have reduced from R10,837 per month to R9,984 — a monthly saving of R853 and over R10,000 per year, Jawitz Properties calculations show.

November's rate cut - glad tidings ahead of the festive season, which immediately cuts monthly repayments on a R2 million home by R300 a month according to BettaBond's calculations — came on the back of the inflation Grinch.