Rate cut offers relief. but South Africans urged to use it wisely

WHILE the South African Reserve Bank’s (SARB) decision to cut the prime lending rate to 10.5% is a welcome reprieve for consumers — especially those with debt or looking at buying houses — it must be seen in the context of an exceptionally difficult economic environment.

- NICOLA MAWSON

SARB's 0.25 percentage point cut in the interest rate is the fifth cut since September 2024 and takes the rate to its lowest level since 2022.

While consumers consider what this means for their finances, Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, warns that the broader economic context remains challenging. “It’s certainly great that the financial pressure on households will ease slightly in the short term,” she says.

While a R2 million bond means monthly repayments going down by just below R340 a month, “we’re on the precipice of an economic disaster,” says Geffen.

“We have record unemployment, basic household costs such as electricity have risen by several hundred percent in recent years, and on average, households are spending an alarming two-thirds of their income servicing debt,” she says.

The rate cut does not erase South African’s financial strain, says Dr Frank Magwegwe, financial wellbeing expert and senior lecturer at GIBS. He cautions that “the path forward is riddled with uncertainty because of uncertainty around the future inflation target. Does the SARB have room to cut further? It depends on what the inflation target is.”

SARB Governor Lesetja Kganyago said during Thursday’s press conference that the current 3% to 6% target means rates would bottom out near 7%. His mooted 3% target will see interest rates fall by about five more cuts to just below 6%, easing the cost of borrowing for households and businesses, he said.