Don’t find yourself in a debt spiral as interest rates remain high

SA Reserve Bank Governor Lesetja Kganyago. File photo: Jonisayi Maromo/ Independent Newspapers

SA Reserve Bank Governor Lesetja Kganyago. File photo: Jonisayi Maromo/ Independent Newspapers

Published Jun 2, 2024


Consumers did not get the much hoped for reprieve from the South African Reserve Bank (SARB) which failed to bring down interest rates last week.

Frank Blackmore, the lead economist at KPMG said the announcement was expected, with the SARB’s monetary policy committee (MPC) unanimously voting to leave the repurchase rate (repo rate) unchanged at the 14-year-high of 8.25%.

This means that the prime lending rate in South Africa would remain at 11.75% per annum.

Blackmore said, “This is due to the volatile economic and geopolitical environment where a number of upside risks remain even though recent inflation data has been more benign, both locally and internationally. The most recent inflation read of 5.2% was an improvement for recent months, but is still far from the target rate of 4.5% which the MPC sees us achieving by the second quarter of 2025.”

“Pressure from housing and utilities, food and non-alcoholic beverage and miscellaneous goods and services were the main contributors to recent inflation. Further reductions in inflation without further economic, political or climate shocks would see the start of a reduction cycle, which is still estimated to begin towards the end of 2024,” Blackmore told Business Report.

Brina Biggs, a senior manager at 1Life Insurance, said the decision by the MPC meant that South Africans would continue to be under financial pressure.

Biggs said, “The rising living costs (are) eating into much of what is considered disposable. Banks have also recently noted that South Africans with home loans are under the quash. So, if you were relying on some easing, it would be best to speak to your bank to see what they can do to assist, or to set up a budget and make tough decisions on your big expenses such as where you live. Taking on further debt or loans to make ends meet only makes you poorer month-on-month.”

She urged consumers to avoid borrowing: “Try and avoid this at all costs, as you do not want to find yourself in a debt spiral. Economists, however, still expect cuts this year, but more towards the end of 2024. Some relief is coming in on petrol and diesel next month, and hopefully that can help tide you over.”

Hayley Parry, a Money Coach and Facilitator at 1Life’s Truth About Money, said while the country was heavily focused on the elections, the economic wheels continued to turn. “What you may not have noticed in amongst all the election news is that the SARB’s MPC met and made a decision to leave the benchmark repo rate at a 15 year high of 8.25%.

“What does this mean for us as consumers? Well critically, if you have taken out any form of debt, it means that that debt is not getting more expensive but it is also not getting any cheaper. So, if you are struggling to make ends meet and the cost of living is eroding your cash flow, and the previous interest rate increases have made a dent in your bank account, then what we would recommend you do is get yourself a financial education.”

“This is all about optimising your skills and your knowledge around a critical life skill that most of us were never been taught at home or at school. So, if you get yourself financial education, you become better at keeping more of the money that you work so hard to earn every month,” Parry added.