South African consumers face tough times even with interest rate cuts

South African consumers remain under pressure, with the consumer “really treading water” even as the Reserve Bank has trimmed borrowing costs, according to Annabel Bishop, Investec chief economist.

Real incomes dropped in the second half of this year, offsetting some of the relief from a series of 25 basis point cuts that started in November.

The average nominal take-home pay in South Africa declined in July 2025, according to the latest BankservAfrica Take-home Pay Index (BTPI), which tracks salary payments of roughly 3.8 million earners.

Despite the moderation evident in recent months, for the year as a whole, the average nominal take-home pay will most probably still be notably ahead of 2024, the BETI found.

While retail sales lifted by 0.9% in the second quarter, wholesale trade sales fell by 0.4%, underlining the mixed picture in spending, said Bishop in a podcast.

Bishop said that, if inflation remains close to 3% and expectations become entrenched, the Reserve Bank could potentially deliver a full one percent in cuts next year.

This is on the back of SARB Governor Lesetja Kganyago stating that the central bank would now use 3%, the bottom of the 3% to 6% target range, as the anchor for its forecasts.

Finance Minister Enoch Godongwana has publicly pushed back against SARB, warning that the central bank cannot independently decide to lower the country’s inflation target.

The governor has argued that lowering the target from the current 3% to 6% band would result in sustainable economic growth and cheaper borrowing costs.

Anchor Capital economist, Casey Sprake, has noted there are issues with Kganyago’s target because “a significant share of inflation comes from administered prices” that consistently rise above the headline consumer price index”.

Yet, Bishop sees lower borrowing rates for consumers if Kganyago’s 3% target is implemented.

“If we're looking at an inflation rate of 3%, one would anticipate that we would therefore find that we're in a situation where our repo rate could be at 5% as opposed to if inflation was at 4.5%, you might be looking at a 6.5% to 7% repo rate,” she said.

Another 25 basis point cut could come at the September SARB meeting, said Bishop.

Bishop added that global conditions are also crucial such as US interest rate cuts and the movement in the rand.

On growth, the September gross domestic product (GFP) release is expected to show around 0.5% expansion in the second quarter, compared to 0.1% in the first quarter which was lifted by agriculture, said Bishop.

Bishop added that agriculture again remains central but faces pressure from foot-and-mouth disease. Mining, manufacturing and electricity output are also key, as prices and production levels determine much of GDP’s value.

Overall, GDP growth is likely to remain below 1% this year, said Bishop. Household consumption expenditure is not expected to be a strong driver, with consumers treading water and only a modest improvement visible in some sectors, she noted.

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