Reserve Bank lifts repo rate to 7.25% and home loans get R170 a month dearer

South African households with variable-rate debt will pay more from Thursday 25 September after the Reserve Bank’s Monetary Policy Committee raised the repo rate by 25 basis points to 7.25%. Prime lending moves from 10.50% to 10.75%. It is the second increase this year, and the decision was unanimous.

As IOL reported on 25 September, the hike raises repayments for households already contending with high fuel, transport and living costs. The figures behind that are worth spelling out for anyone holding a bond, a car finance agreement or unsecured debt.

TransUnion South Africa estimates the increase adds about R160 to R170 a month to repayments on a R1 million home loan. A R2 million bond costs an additional R320 to R340 a month. Someone financing a R400 000 vehicle pays about R65 more. These are estimates, not billed amounts, and they assume the loan reprices with the prime rate.

Reserve Bank Governor Lesetja Kganyago said global supply shocks linked to conflict in the Middle East and the Russia-Ukraine war were adding to inflation risks. The Bank lifted its inflation forecast for this year to 4.4%, with headline inflation expected to move above 5% later this year and into early next year. It forecasts annual economic growth of 1.2%, even after GDP contracted by 0.2% in the second quarter.

Cosatu criticised the decision. The federation said home loans and other debt linked to the repo rate would become harder to service for millions of workers, and that the increase would take money out of an already weak economy. It said workers were already dealing with petrol and diesel increases, higher public transport costs and above-inflation electricity tariffs.

“Most workers are drowning in debt and borrowing simply to pay for food, electricity and transport and service unaffordable debt,” Cosatu said.

The federation argued that the inflation pressure was coming from international developments rather than strong domestic demand, and called on the Bank to avoid further increases. It also urged National Treasury to reconsider fuel levy relief until fuel prices return to pre-war levels.

Sanlam Investments economist Patrick Buthelezi said the committee was worried about persistent services inflation, which reached 5.1% in August. Services prices feed into wage demands and inflation expectations, he said, and while expectations have eased they remain above the Bank’s 3% target. The Bank is keeping policy restrictive to stop price pressures becoming entrenched. Its quarterly projection model points to unchanged rates and possible easing next year, but Buthelezi said policy is likely to remain higher for longer.

PSG Financial Services chief economist Johann Els said the unanimous vote was firmer than he expected. He had anticipated a close call with a strong case for a hike, and read the unanimity as more hawkish than he had allowed for. His expectation is no further increases after this one under current circumstances, on the view that the Bank fears a prolonged global supply shock lifting inflation expectations and delaying the return to 3%.

For households, the pressure is already visible in the credit data. TransUnion said 38.8% of consumers expected difficulty paying future bills and loans, and household debt-to-disposable income rose to 62.2% in the first quarter. TransUnion Africa chief executive and regional president Lee Naik said affordability remains fragile and increasingly sensitive to further cost increases.

TransUnion expects consumers to cut discretionary spending, review budgets and delay major purchases as they prioritise debt repayments and essentials. It cautioned that further tightening could renew pressure on repayments, particularly in unsecured lending, where delinquency rates remain elevated.

The practical effect for a reader with a bond is straightforward. If your repayments track prime, the instalment changes with this decision. If your debt is fixed, it does not. If you are carrying unsecured loans, the warning about that part of the book is the one to watch.

Source: IOL, Repo rate hike tightens household budgets