The South African Reserve Bank (SARB) has hiked rates by 200 basis points since its hiking cycle started in November 2021, putting indebted consumers on the block for thousands of rands.
Francois Stofberg, senior economist at Efficient Wealth said that for every R1 million of debt that a household has, it will now cost R20,000 more each year – or R1,667 per month.
The average household in South Africa has approximately R415,000 in debt, the economist noted.
Drawing on credit data from different sources there are about six million consumers (read households) with debt, including bonds, credit cards and various types of short-term loans.
Total household debt in the country is close to R2.5 trillion rand, which averages out to R415,000 per household.
“If we use this figure as an accurate estimation, it means that indebted consumers are now paying R8,300 more for their debt each year, or R692 more each month,” Stofberg said.
The latest interest rate hike will lead to a higher cost of living for South Africans, who are already over-indebted. According to the SARB, household debt, expressed as a percentage of disposable income is approximately 65%, Stofberg added.
Stofberg said that South Africans overall will now pay R50 billion more for their debt each year.
“From a macro perspective, we agree that interest rates should increase – we do not agree with the pace of the increases,” said Stofberg.
“Interest rates are not being increased to curb inflation because the SARB’s increases have very little impact on higher fuel and food prices, the main culprits of inflation.”
Unlike in rich countries, South Africa does not have above-trend demand pushing up prices, Stofberg said, noting that demand has in fact been under severe pressure for many years in the country.
Interest rates should increase to remain competitive in international capital markets that can help with short-term capital flow and long-term economic performance, but for this it is not necessary to increase interest rates at the current pace, added Stofberg.
“It seems that the SARB will increase interest rates by at least another 0.50% this year and should increase interest rates by a further 1.50% in 2023,” he said.