Repo rate cut too small to help SA consumers who cannot afford food

South African consumers can be forgiven for their luke-warm response to the Reserve Bank cutting the repo rate by only 25 basis points, although many will breathe a sigh of relief at the thought of even a little respite over the festive season.

The governor of the South African Reserve Bank (Sarb), Lesetya Kganyago, kept his promise of embarking on a slow rate-cutting cycle that started in September this year when the repo rate was cut for the first time in over four years, with his announcement of a second repo rate cut in November, explaining that easing inflation rates in October and a rallying Rand influenced the Reserve Bank’s decision.

The Monetary Policy Committee (MPC) increased the repo rate by a massive 475 basis points since November 2021 after extreme inflationary pressures hit the South African economy following the Covid-19 pandemic.

This took the repo rate to a 15-year high of 8.25%, where it settled until the first rate cut in September which took it down to 8%. The latest cut brings the repo rate down to 7.75%.

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Economists warn inflation will increase again after repo rate cut

Economists warn that the upside risks to inflation have increased since the September MPC meeting, with the biggest risk emanating from the US and the policies of its president-elect, Donald Trump. However, others disagree, asserting that Trump’s decisions will have little bearing on the interest rate.

Investec chief economist Annabel Bishop points out that the Rand continues to run above R18.00/USD, as risk aversion increased towards commodity and emerging market currencies.

But there is hope in the form of a credit rating outlook upgrade from Standard and Poor, which adjusted the country’s outlook to ‘positive’. This means South Africa could be eligible for a rating upgrade, which would significantly boost the Rand’s value.

However, Neil Roets, CEO of Debt Rescue, says regardless of the economic factors, ordinary South African consumers continue to bear the brunt of the highest interest rates the country has experienced in over a decade, along with relentless increases in living costs, a water scarcity crisis that is rapidly escalating and a seasonal drought which could seriously impact food crop quantities as we head into the festive season.

“This means we could see families across the nation grappling with food insecurity and even higher food prices. While the repo rate cut is a step in the right direction, it should come as no surprise that this small drop in borrowing costs will make no discernible difference in the lives of millions of struggling households across the country.  It will most certainly not put food on the table of millions of families in need.”

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Shocking statistics from National Food and Nutrition Security Survey

He points out that recent shocking statistics from the National Food and Nutrition Security Survey paints a concerning picture of widespread food insecurity across the country, revealing that nearly two-thirds (63.5%) of households currently struggle to access adequate food, with many cutting down on the number and quality of meals and they prepare daily.

This was measured using the Household Food Insecurity Access Score (HFIAS), an indicator that shows the severity of food insecurity at the household level.

“The survey’s results also underscored the triple burden of malnutrition that South Africa faces. This includes not only hunger but also ‘hidden hunger’ (micronutrient deficiencies) and rising obesity rates due to nutrient-poor diets. This should sound the alarm among the country’s leaders if nothing else does,” Roets says. 

“It is deeply concerning that so many children across the country can no longer look forward to enough nutritious food to eat every day. This means that they are sent to school hungry and unable to concentrate and perhaps even more worrying, susceptible to all manner of illnesses, as their nutritional needs are not met.

“It makes sense that this is exacerbated due to the steep hike in the price of staples, such as meat (91%), vegetables (50%) and potatoes (75%) over the past few months, as reflected in a recent Debt Rescue survey.”

ALSO READ: ‘Many households are food insecure’: Survey reveals ‘grim picture’ for ordinary, poor South Africans

Survey shows major drop in food security – repo rate cut not much help

The South African Food Security Index 2024, authored by Stellenbosch University’s professor Dieter von Fintel and Dr Anja Smith, paints a grim picture of a steep drop in South Africa’s food security, from a score of 64.9 in 2019 to 45.3 in 2023, with child hunger emerging as a persistent issue.

This prompted Africa’s largest food retailer, Shoprite, to call for bold policy interventions among government, to tackle hunger and malnutrition.

Roets says he supports this, pointing out that these statistics should, at the very least, send shockwaves across the halls of government and the boardrooms of corporate South Africa.

“The fact that this is not at the top of everyone’s priority list, is disturbing, to say the least. We already have 30.4 million people living below the country’s upper-bound poverty line of R1 634 per month and this number will simply continue to grow if we do not find a way to bring food prices down fast,” he warns.

“While I understand that global factors like conflict contribute to escalating food prices, there are factors like the repo rate and food price monitoring that, when managed, can relieve the confluence of pressures on consumers. Much more urgent action is needed, especially from the major retailers who benefit from high food prices.”

ALSO READ: Households worry about food running out before month-end

Crop season in the balance due to little rain

And as if consumers do not have enough problems to deal with, South Africa’s 2024/25 crop season hangs in the balance as hot and dry conditions persist, leading to rising anxiety among farmers who face potential yield losses.

According to Absa AgriBusiness, these weather patterns pose a significant threat to crop production, particularly if timely rainfall does not materialise.

Dr Marlene Louw, senior economist at the organisation, has been monitoring the situation closely and advises that “sufficient rainfall within the next few days is crucial, especially in the eastern parts of the country, which have an earlier summer grain and oilseed planting window.”

However, on a more positive note, Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa (Agbiz), notes that “optimistic forecasts for good rains within the next two weeks,” could prove beneficial for the sector.

Roets says while we wait anxiously for good rainfall, people across the country are preparing for a lean festive season.

“Desperate for some relief from the tough year, they will be leaning even more heavily on their credit and store cards to be able to celebrate the festive season in some way. A growing number of people are resorting to short-term loans and credit facilities to get through the month, trapping them in a vicious debt cycle that is not easy to break.”