Reserve Bank’s high interest rates crushing South African households

Economist and independent analyst Dr Roelof Botha said the South African Reserve Bank’s (SARB) high interest rates have created a “self-inflicted pandemic” in the country as households struggle to get by.

Botha’s comments were made in light of the Altron FinTech Household Resilience Index for Q3 2023 showing that most South African households are experiencing significant financial challenges due to the SARB’s hawkish monetary policy.

Botha told BusinessDay TV that the Altron Index has become a valuable tool to assess whether households are in a position to apply for and obtain some form of credit. 

“I don’t have to tell the viewers that it’s been pretty tough since the Reserve Bank started with its hawkish monetary policy,” he said.

“They like the term ‘hawkish’ because there’s no sign of demand inflation in the economy, and yet they refuse to lower interest rates, which the economy desperately needs.”

He explained that the indicator that has pulled down the Altron Index in the past two years had been high interest rates, which have led to higher debt costs.

The SARB started its current hiking cycle in November 2021 and has since raised the repo rate by a cumulative 475 basis points to a 14-year high of 8.25%.

“The ratio between household income and debt costs has obviously declined,” Botha said. 

“If you look at the reciprocal debt costs as a percentage of household income now, it is virtually the same as it was in the second quarter of 2020, the Covid-quarter.” 

“It is a point of huge concern because, essentially, it’s not necessary. This is like a self-inflicted pandemic.”

Botha has previously expressed his concern for the economic impact of the SARB’s high interest rates.

He said the gains South Africa made in the post-Covid-19 recovery period have been wiped out by this high interest rate.

“It’s as if the Monetary Policy Committee just doesn’t know when to stop,” Botha said. 

“They are breaking the economy. They must take their foot off the brakes and hit the gas, and that means lower interest rates.”

SARB Governor Lesetja Kganyago recently said the rates will only come down when inflation has sustainably returned to the mid-point of its target range – 4.5%.

“Don’t try to figure out what the decision might be based on one monthly figure,” Kganyago warned.

“There’s so much uncertainty out there about the inflation outlook among central bankers, and we are no exception.”

“Yesterday’s and today’s inflation figures do not help determine the monetary policy rate – what matters is what inflation is in the next 12 to 24 months.”