South African households say goodbye to R200 billion
The extent to which South African households have lost purchasing power is alarming, largely due to the South African Reserve Bank’s (SARB) high interest rates.
The Altron FinTech Household Resilience Index (AFHRI) for the third quarter of 2024 rose by 2.1% year-to-year.
Economist Dr Roelof Botha, who compiles the index on behalf of Altron FinTech, said this is due to the recent lowering of the repo rate.
However, he said this improvement was overshadowed by zero growth in South Africa’s household income to debt ratio.
“It is quite obvious that the restrictive monetary policy stance of the Reserve Bank’s Monetary Policy Committee (MPC) has come at a substantial cost to the economy,” Botha said.
The country’s high interest rates have kept the average debt cost burden of households at its highest level in 15 years.
Botha highlighted one of the most worrying trends in the latest AFHRI – the ratio of household income to debt costs is almost 9% lower than in the first quarter of 2020.
“It is a pity that the MPC seems to have overplayed its hand in attempting to tackle an inflation problem that was never caused by excessive demand in the economy,” he said.
Botha explained that high inflation was actually caused by the massive increases in energy costs and global freight shipping charges due to the Covid lockdowns.
In the first quarter of 2022, households sacrificed 6.7% of their disposable incomes to pay for debt costs.
Since then, this ratio has increased by 36%, with households now having to spend 9.1% of their disposable incomes on servicing debt.
“The extent of the loss of purchasing power amongst households is alarming,” Botha said.
If household debt costs had remained at the same level as in early 2022 – before interest rate hikes started to bite – South African households would have had an extra R200 billion to spend.
Botha said this would have led to much higher economic growth for South Africa as well.

“The decision by the MPC at the end of 2021 to follow a restrictive monetary policy stance has resulted in a relentless increase in the official repo rate, which automatically feeds into the prime overdraft lending rate of the banks,” Botha said.
South Africa’s prime rate was 7% at the end of 2021 but jumped to 11.75% in May 2023, where it stayed for 16 consecutive months.
Botha said this represents an “unheard-of” increase in the cost of credit.
“At an annualised rate of merely 3%, consumer inflation is now exactly at the bottom mark of the Reserve Bank’s inflation target range of 3% to 6%, and the MPC is fast running out of reasons to maintain its overly restrictive monetary policy stance,” Botha said.
“This is vindicated by the fact that the real prime rate – prime minus inflation – has continued to rise and now stands at 8.3% – one of the highest commercial lending rates in the world.”
“What is even more perplexing, from the perspective of the quest for higher economic growth, is the fact that the real prime rate stood at 5% at the beginning of 2020, which means that the real cost of credit – and of capital – in South Africa has now increased by 66%.”
“Hopefully, the MPC will lower rates further early in 2025, which would be an important trigger to lift the country’s growth rate and create more jobs.”
The MPC meets again on Thursday, 30 January, to determine the country’s interest rates.
Excerpts largely expect the committee to implement another 25 basis point cut, continuing the cycle it started in September last year.
However, many experts have also cautioned that this cutting cycle will be far more shallow than many may have hoped, as the MPC remains cautious of upside risks to the inflation outlook.
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