No financial reprieve in repo rate for consumers buckling under debt

There has been no reprieve in the repo rate for consumers buckling under debt, creating a ticking time bomb while South Africans collectively wait with bated breath for some small financial reprieve from the relentless price hikes of the past few years.

What drove them most to the brink of despair was the highest interest rate the country had to contend with in over a decade, fuelled by soaring inflation.

The announcement by the Reserve Bank governor, Lesetja Kganyago, on Thursday that there will be no immediate relief for its citizens as the repo rate holds steady yet again at 8.25%, at least until the end of 2024, has been met with a pervading sense of apathy across the nation, Neil Roets, CEO of Debt Rescue, says.

“This is in line with the recent Monetary Policy Review from the South African Reserve Bank (Sarb), revealing that it currently sees the start of the local interest rate cut cycle well into 2025, raising expectations that the cutting cycle will come long after the US Federal Reserve Bank starts its downward cycle.”

With much speculation doing the rounds regarding the impact of the general elections on the Sarb’s decision, Efficient Group economist Dawie Roodt said he was confident that the Monetary Policy Committee (MPC) would not be influenced by political developments, but that the election outcome could affect exchange rates, which would influence inflation.

ALSO READ: Repo rate stays the same – again

Some economists still expect repo rate cuts in September and November

However, some economists, such as the team at Nedbank, still anticipate at least two rate cuts in 2024: 25 basis points in September and again in November, but projections that the central bank will continue to hold on rates for the rest of the year are also starting to emerge.

This news comes hot on the heels of the fourth consecutive hike in the petrol price earlier in May that has hit motorists and commuters very hard, leading to increases in public transport costs and fuelling cost-push inflation that contributes to the overall inflationary pressures within the economy.

“South Africans had their last hope dashed by this bitter news. They have long since reached the end of the line financially and have been hanging on by a thin thread, believing a turning point in the repo rate will be reached in time to save them. Now, with all hopes dashed, desperation has become the new normal for the country’s citizens,” Roets said.

“Another ticking time bomb that has broad economic implications is the ever-increasing unemployment rate. With 13.1 million people currently unemployed, South Africa ranks among the countries with the highest unemployment rate in the world,” Roets says.

“The impact of this is far-reaching. Unemployment results in poverty, social exclusion, rising crime and social instability, mentally and physically. This is one of the biggest red flags right now, that the country dares not ignore,” Roets warns.

ALSO READ: Inflation expectations delay repo rate cut, but it will come this year – economists

Unemployment also a major problem

Statistics SA recently released its Quarterly Labour Force Survey for the first quarter of 2024, ending March 2024. According to the results, the official unemployment rate increased by 0.8% from 32.1% in the fourth quarter of 2023 to 32.9% in the first quarter.

In real terms, Roets says, this means that an additional 308 000 people joined the ranks of the approximately 30 million people currently living below the national upper poverty line of R1 558 per person per month, with households now facing impossible decisions, such as whether to use their spending money on nutritious food or pay for transport to get to work or school.

“And still there is no end in sight to the relentless price hikes for basic necessities, with living expenses, which include groceries, energy, transport and communication accounting for around 85% of monthly income.” 

Roets says it is not surprising that millions of people had to incur enormous debt as they are no longer able to keep up with their lifestyle needs simply to make it through each month, as living expenses along with the exorbitant interest on vehicle, home and personal loans gobble up much of their income.