All eyes on the Reserve Bank for relief as take-home pay sinks

The average nominal take-home pay in South Africa dropped for the second month in a row, with eyes now turning to the Reserve Bank’s interest rate decision this week for any hope of relief.

The nominal average take-home pay declined to R17,495 in April 2025, down 2.0% from R17,846, said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements. 

“Despite this deceleration, levels remain significantly higher than the R15,370 recorded a year ago.”

The upward trend in take-home pay from mid-2024 also marks a positive development after years of weak growth and salaries lagging behind inflation.

That said, the escalating global trade war has also dampened sentiment worldwide. This has impacted South African households and slowed economic activity, and investors pull back on spending.

“Although the worst-case scenario for the trade war impact seems to be averted, economic growth forecasts were trimmed notably for the global economy, ” said economist Elize Kruger.

“Local growth prospects are also expected to disappoint. This could hurt employment and earnings prospects of salary earners in South Africa in the coming months.”

The increased cost of living is also impacted by additional taxes announced in the 2025 National Budget, including no tax bracket adjustment and an inflation-related fuel levy increase.

The high interest rates also mean that salary earners remain under extreme pressure. Early indications also show that Q1 real GDP growth will likely be zero or even negative.

The current repo rate stands at 7.5%, while the real repo rate stands at 4.1%. Kruger said it is a very restrictive stance if the neutral real repo rate of 2.8% is considered.

“A lowering in the cost of credit could go a long way to offering relief to households and the business sector, boosting confidence levels somewhat, while also lowering the hurdle rate on capital expenditure programmes.”

“While a more aggressive cut would have been welcomed, the South African Reserve Bank is likely to cut interest rates by only 25bps at best at its Monetary Policy Committee meeting on Thursday, 29 May 2025.”

She added that the current low inflation environment, with CPI standing at 2.8% in April, allows monetary policy to play a key role in offsetting some of the pain the economy is facing.

“While the debate about lowering the inflation target band is ongoing, it should not prolong the pain inflicted on the economy by exceptionally high interest rates,” said Kruger. 

Close call for interest rates

Although the Bloomberg consensus predicts a 25 basis point decrease in interest rates, lowering the inflation target could delay this move.

There is a broad view that the inflation target needs to be lowered from its current range of 3% to 6%, with technical teams from the SARB and National Treasury emphasising this point.

Investec Chief Economist Annabel Bishop warned that lowering the inflation target may be a double-edged sword.

A negative consequence for consumers is that a lower inflation target risks stopping further interest rate cuts this year.

More positively, this would widen the gap against US rates and support a stronger rand, which a weakening dollar has already buoyed.

Many local economists have also pencilled in a hold on rates this week due to lingering global uncertainty.

However, Bishop noted that the SARB could choose to cut rates now to avoid any limitations in the future with a lower inflation target. This could then result in hikes later in the future.

Tatonga Rusike, the sub-Saharan Africa Economist at Bank of America, said that the monetary policy remains tight as the SARB rate cuts have been slower than inflation’s deceleration.

“Indeed, inflation is below target while the SARB policy rate is still to get to a neutral level. We expect SARB to cut twice in 2025, taking the policy rate to 7%,” said Rusuke.