South African households have faced increased debt repayments after the Reserve Bank raised the repo rate to 7.25%. The organization Debt Rescue warned that consumers have very little left in their budgets.
South Africans, who were already struggling with high costs of living and loan repayments, received another financial blow following the interest rate hike by the South African Reserve Bank (SARB). The Monetary Policy Committee of the Reserve Bank unanimously increased the repo rate by 25 basis points, bringing it to 7.25% as of September 25th, to curb renewed inflationary pressures.
This increase means higher borrowing costs for consumers with variable-rate debt, including mortgages, car loans, overdrafts, and credit cards.
What does the repo rate hike mean for borrowers
Economist Douwe Rudd warned that the country may already be moving towards a recession. Rudd noted that this increase will be particularly difficult for indebted residents of South Africa during a period of extremely weak economic growth.
Rudd stated: 'This interest rate hike will be quite hard for the average citizen in South Africa, especially if you owe money.' He added: 'Since the economy is barely growing. In fact, we might be in a recession, and this will create additional financial pressure on people, mainly.'
Economists warn of slowing growth
He also suggested that the rate hike itself could contribute to further economic slowdown. Economist Ulrich Jobert believes that the impact of this decision will vary for each household depending on their level of indebtedness.
Jobert explained: 'It depends on whether you have a mortgage, a car loan, an overdraft, a credit card that you owe on.' He continued: 'If you have these loans, a car, housing, any loans, overdrafts, then you will pay more.' He specified that the increase could require extra expenses ranging from 100 to 500 or even 1000 rand monthly, depending on the size of the loan.
Sandra Dixon, founder of Stop City of Cape Town, noted that working families were already experiencing serious financial difficulties. According to her, 'for working families paying mortgages, higher interest rates mean higher monthly mortgage payments, while car loans, overdrafts, and other variable-rate debts also become more expensive.' She concluded that 'this adds to the overall financial pressure that working-class families are already facing.'
Pressure on households from fuel and municipal utility prices
'Combined with the increase in municipal bills for July, working-class families are now pushed to the limit,' Dixon noted. The rate hike also comes amid growing concerns about fuel prices.
Jobert warned that drivers could face significant price increases in October, as petrol recently showed a shortfall of about 2.88 rand per liter, and diesel was under pressure around 3 rand per liter. He predicted: 'In October you will pay at least 2.88 rand more for petrol, and I think it could be closer to 3.' He also reported that 'if you look at the price of better quality diesel, it already has a shortfall of 3 rand, so from October you will pay at least 3 rand more per liter of diesel.'
He emphasized that the impact would not be limited to gas stations, as higher transport costs would likely affect food and other commodity prices. Dixon stated that the combination of higher interest rates, utility bills, and expected fuel price increases will leave households with even less disposable income.
She added: 'This is happening at a particularly difficult time when households are already under pressure, and a sharp rise in fuel prices is expected, which will increase transport costs and add pressure to the cost of food and other necessities.' In her view, 'for many working households, this means less money at the end of the month and even tighter household budgets.'
