Concerns of economists who predicted a hold on the anticipated repo rate cut by Governor of the Reserve Bank Lesetja Kganyago on Thursday 20th March, have been realised, to the dismay of the nation. This, coupled with a VAT increase of 0.5% confirmed for this financial year and a 2nd 0,5% for the 2026/2027 fiscus, has all but extinguished any hope of financial relief for South Africa’s struggling consumers.
Neil Roets, CEO of Debt Rescue warns that this fatal one-two punch delivered by government will decimate the lives of millions of citizens, who are sinking deeper into a sense of hopelessness with each financial blow. “Even a small rate cut would have kept a glimmer of hope alive among embattled consumers who are desperate to dig themselves out of their financial abyss and are drowning in debt as a result of exorbitantly high interest rates. The additional burden of a VAT increase – no matter how small – on the majority of citizens, who are already grappling with high levels of unemployment and rising costs of essential goods, will take the nation to the point of no return.”
“It is equally concerning that government has opted not to adjust personal income tax brackets in line with inflation, within the 2025/2026 budget, as this effectively increases the tax burden on individuals, as salaries grow but tax thresholds remain unchanged,” adds Roets. “This, combined with the 12.7% electricity tariff hike that kicks in on 1st April 2025, will heighten financial strain and deepen the debt crisis among consumers.”
Ahead of the 20th March repo rate announcement, Investec chief economist Annabel Bishop recapped that the SARB’s Monetary Policy Committee had already indicated it was likely to pause at the March meeting, with its last statement indicating a growing uncertainty around its forecasts and a developing wait-and-see attitude. She pointed out that the United States’ monetary policy stance is one of the key external factors that influence the SARB’s decision.
The exchange rate of the rand remains a key factor in economic stability and would have influenced the MPC’s decision. A weaker currency drives up import costs, particularly for essential goods like fuel and food, exacerbating inflationary pressures. In such a scenario, the South African Reserve Bank would be hesitant to lower interest rates prematurely, as its mandate includes safeguarding the rand’s value. This will be a critical consideration in future monetary policy decisions.
“Regardless of the economic factors – global and domestic – behind the decision, it will have a profound effect on taxpayers at a time when fluctuating inflation due to rising costs, has significantly reduced consumer purchasing power, by decreasing the value of money – leading to a steep decline in the standard of living, especially among lower income families. Realistically, this is where we are at right now,” says Roets.
“It is unacceptable that hard-working South Africans continue to bear the brunt of the highest interest rates the country has experienced in over a decade, along with the relentless increases in living costs, a water scarcity crisis that is rapidly escalating and food prices that place nourishing food out of reach of the most vulnerable among us,” he adds.
South Africans are hanging on by their bootstraps with the average consumer spending 68% of their take-home pay on servicing debt. Total consumer debt is now at some R2.3 trillion, with more than half of this being accounted for through bonds, according to the National Credit Regulator (NCR).
Data released by the NCR, reveals that consumers applying for loans and those in arrears reached a new high in the third quarter of 2024. In particular, mortgage arrears rose to 6.9% of outstanding loans, while payments that are between one and three months overdue also remain elevated.
“One of the major factors that traps many citizens in a relentless debt cycle is the rising cost of credit due to existing debt. This is most evident with big purchases like home and car loans. My advice to those who cannot break free from their financial constraints is to seek help from a registered debt counsellor who can assist them to manage their financial predicament. This has been a very successful solution for thousands of consumers who are plagued by over-indebtedness,” concludes Roets.
