As South Africans sink deeper and deeper into a protracted cost-of-living crisis fuelled by the highest interest rate the country has seen in over a decade, Reserve Bank Governor Lesetja Kganyago warned consumers of rocky roads ahead at least for the foreseeable future.
While his announcement that the repo rate would hold steady for at least the next two months aligns with market consensus, some disagree with Kganyago’s sentiment that the bank won’t change policy until inflation is sustainably at 4.5%, as its constitutional mandate is to protect the value of the rand by keeping inflation low and steady.
In the Bank’s annual report published last month, he said the SARB was concerned that inflation was still stuck above 4.5%, and it was important to rebuild confidence in its ability to attain its target.
Goldman Sachs last week changed its prediction to an out-of-consensus 25 basis point (bps) cut to 8%, saying “lower political risk and a stronger currency provide a disinflationary environment that supports our case for a cut”.
Annabel Bishop, the chief economist of Investec, said the rand was on a strengthening trend since the end of April, reaching R17.95 against the dollar at the end of last week, on an election outcome that’s been viewed positively by the market - although it has since weakened on some risk-aversion following the attempted assassination of former US President Donald Trump.
Others hold out hope that the country is on the brink of a monetary easing cycle, which, along with slowing inflation, will boost the economy and create employment opportunities.
Standard Bank forecasts the beginning of a monetary easing cycle in September, while FNB anticipates the MPC will begin easing only in November this year.
This would be South Africa’s first change in interest rates since the Bank implemented the last of a series of hikes in May 2023.
Neil Roets, the CEO of Debt Rescue, said consumers were in dire need of some relief. “The extended steep interest rate has decimated the lives of South Africans from all walks of life, and with borrowing costs at their highest level in more than a decade, households are feeling the pain of higher prices. Urgent action is needed to diffuse this ticking time bomb,” Roets told Business Report.
Bishop said that South Africans were getting poorer as their take-home pay couldn’t keep up with inflation, negatively affecting their real spending power.
“The most distressing consequence is that people are buying less food because their salaries already cannot keep up with high inflation and interest rates. They have been hanging on by a thin thread since the start of the interest rate hiking cycle, and many have reached the end of their rope,” Roets said.
Koketso Mano, a senior economist at FNB, said food pressures were likely to intensify in the second half of the year on the back of adverse weather conditions, and as higher soft-commodity prices reach retail shelves.
The latest quarterly survey from the Bureau for Economic Research (BER) shows that households still fear an upsurge in the cost of living, and they are sceptical that the government can bring down inflation and keep it down.
“As South African consumers remain under pressure, most of their budget goes towards essentials,” said Rodger George, consumer industry leader for Deloitte Africa.
He pointed out that consumers’ food-buying behaviour remained one of the strongest measures of economic health. Another concerning trend was the increase in the use of credit cards.
“Average interest rates for unsecured credit, of which credit card is a portion, are hovering around 25.7%. This is the highest we have seen since 2016. That is pretty expensive credit, especially if you are unsure as a consumer whether you will make the necessary payment by day 55,” Roets said.
The increase in borrowing costs over the past three years has put significant pressure on consumers, especially homeowners.
“The spike in interest rates, while necessary to curb inflation, resulted in a hefty 42% increase in monthly repayments on a 20-year home loan compared with November 2021,” Roets pointed out.
He said this was the kind of financial pressure that had led to a significant surge in debt counselling enquiries, reflecting the impact on the financial situation of South Africans.
“My advice to those who find themselves in a debt trap is to seek help through debt review, where a registered debt counsellor can assist you to manage your financial predicament. It is never too early to ask for help,” Roets said.
BUSINESS REPORT