Rate cut offers relief, but South Africans urged to use it wisely

While the South African Reserve Bank’s (SARB) decision to cut the prime lending rate to 10.5% is a welcome reprieve for consumers – especially those with debt or looking at buying houses – it must be seen in the context of an exceptionally difficult economic environment.

SARB’s 0.25 percentage point cut in the interest rate is the fifth cut since September 2024 and takes the rate to its lowest level since 2022.

While consumers consider what this means for their finances, Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, warns that the broader economic context remains challenging. “It’s certainly great that the financial pressure on households will ease slightly in the short term,” she says.

While a R2 million bond means monthly repayments going down by just below R340 a month, “we’re on the precipice of an economic disaster,” says Geffen. “We have record unemployment, basic household costs such as electricity have risen by several hundred percent in recent years, and on average, households are spending an alarming two-thirds of their income servicing debt,” she says.

The rate cut does not erase South Africans' financial strain, says Dr Frank Magwegwe, financial wellbeing expert and senior lecturer at GIBS. He cautions that “the path forward is riddled with uncertainty because of uncertainty around the future inflation target. Does the SARB have room to cut further? It depends on what the inflation target is.”

SARB Governor Lesetja Kganyago said during Thursday’s press conference that the current 3% to 6% target means rates would bottom out near 7%. His mooted 3% target will see interest rates fall by about five more cuts to just below 6%, easing the cost of borrowing for households and businesses, he said.

While growth might slow slightly at first, this short-term trade-off would pay off with permanently lower prices, lower interest rates, and a stronger rand over time, Kganyago said.

Magwegwe says major consumer surveys show that many households are still struggling with debt repayments despite the May interest rate cut.

“This is because the long period of high interest rates before the cutting cycle started and rising cost of living saw consumers using debt to make ends meet. The high level of indebtedness suggests that it will take a few rate cuts for consumers to benefit from the lower interest rates significantly,” says Magwegwe.

Yet, Afua Darko, business head of Sanlam Credit Solutions, explains that the rate cut can have a powerful spillover effect for those who manage their finances wisely. “As a credit-active consumer, the recent interest rate cut is a big win for your personal finances. While it might seem like a small shift, the ripple effect can be powerful if you take charge of how you manage your debt,” she says.

Colleen Kaufmann, tax manager at Arro Strategic Tax and Accounting Services, adds that this is the right time for households to reassess their financial plans as its benefits will compound.

Darko notes that lower rates, reducing the cost of existing debt, give people the room to use additional savings to pay down the actual capital debt, not just interest. She suggests targeting high-interest debts first and reducing credit use to improve credit health and make future borrowing cheaper.

Sentinel Homes MD Renier Kriek says, “consumers are unlikely to be buoyed significantly by this marginal lowering of interest rates, and property demand may see only gradual or shallow improvement”.

Maarten Ackerman, chief economist at Citadel, cautions against reacting too quickly. “A single rate cut doesn’t justify wholesale portfolio changes. Investors should remain focused on long-term objectives and consider the full interest rate cycle.”

Even so, there are some encouraging signs. Michael-Anne Abrahams, bond originator at MyProperty Home Loans, notes that “it’s also encouraging that SARB expects inflation to stay close to 3% over the next two years. That stability creates a stronger foundation for future rate cuts and helps restore confidence in the economy.”

Bradd Bendall, BetterBond’s National Head of Sales, says the cut sends a clear message. “This sends a strong signal to investors that the country is intent on driving economic growth despite global challenges. South Africa’s move is aligned with a cautious global trend toward stimulating consumer spending and investment.”

Geffen remains confident in the property market’s long-term resilience. “Real estate will always be a safe haven investment. It is a long-term appreciation asset; people understand that it is the foundation of personal wealth creation, and the uptick in the market this year is testament to that,” she says.

BetterBond’s July data already shows a 7.4% increase in bond applications for the year to May 2025, with home loans granted up 13.6%. “These volumes point to renewed buyer confidence and a more stable market environment that should encourage more aspirant first-time buyers to enter the property market,” Bendall adds.

Kaufmann notes that, “in an environment where inflation is contained but unpredictable, the rand is volatile, and economic growth remains patchy, resilience depends not only on reacting to changes, but on preparing for them”.

Magwegwe believes that any relief from the cut should be used strategically. “For consumers carrying unmanageable debt, the message is simple: use the improved cash flow from reduced interest to further reduce debt.”

"Ultimately, what ties all these threads together is the importance of deliberate financial planning,” Kaufmann says.

PERSONAL FINANCE