Interest rate pain has a silver lining for South Africans

The South African Reserve Bank’s (SARB) decision to hike interest rates by 25 basis points will cause financial strain for many South Africans, but there may be a hidden benefit for some.

SARB Governor Lesetja Kganyago announced on 28 May 2026 that South Africa’s borrowing rates would be raised for the first time in over three years, up to 7%.

Consult by Momentum wealth manager Jurgen Eckmann said the SARB’s decision reflected its determination to keep inflation expectations anchored around its new 3% target.

“April’s CPI print of 4% pushed inflation to the upper edge of the bank’s tolerance band, driven largely by fuel-price pressures linked to global supply disruption,” Eckmann said.

“The Monetary Policy Committee’s role is not necessarily to react to the shock itself, but to prevent second-round effects from becoming embedded into wages, rents, and wider pricing behaviour.”

Eckmann described the rate hike as the SARB’s first real “stress-test” of its new flat inflation target, which was introduced in November 2025 to replace the old target range of 3% to 6%.

Early action taken by the SARB now could stem the tide of further rapid acceleration of inflation and would prevent the need to hike more steeply down the line.

However, while the hike appears relatively moderate, this can quickly compound with regard to debt repayments on property and vehicle purchases.

Eckmann noted that a 25 basis point hike in interest rates can add as much as R37 per month in repayments for every R300,000 taken out on a loan for a vehicle at the prime lending rate.

He stressed that the more severe pain of a higher interest rate will likely not be felt in vehicle and mortgage repayments, but in unsecured lending.

“If you are carrying credit card debt at the typical 18% interest rate, the hike itself only adds around R6 a month per R30,000 of balance,” Eckmann said. “But that is not really the story.”

“Consumers are already paying approximately R5,400 a year in interest on that R30,000 simply to stand still. Compare that to a home loan, where the same R30,000 of debt costs around R3,150 a year.”

The upside to higher interest rates in South Africa

Heightened interest rates are certain to inflict some pain on South African consumers over the short term, but Eckmann said there is another side to the story that is not as apparent.

While higher rates indicate an increase in debt repayments, it also translates into higher returns on savings and investments for many South Africans.

“A rate hike is a tax on debt, but it is also a dividend on discipline,” Eckmann said. “South African savers are now earning some of the strongest real cash returns in the emerging market environment.”

Eckmann explained that this was especially applicable to South African retirees and consumers with emergency funds currently in a money market or other income investments.

He also said the current market environment could unintentionally drive these consumers to reconsider their savings options.

“For consumers with excess cash or short-term savings goals, this is one of the more attractive interest rate environments we’ve seen in years,” Eckmann said. “The key is making sure your money is working as hard for you as possible.”

Alongside this, Eckmann advised South Africans against dipping into their two-pot retirement savings to mitigate rising costs and debt burdens.

While many households may be tempted to use these savings as security in the short-term, this can become an extremely costly decision further down the line.

“A R30,000 withdrawal at age 40 could ultimately destroy hundreds of thousands of rand in future retirement value once tax and lost compounding are taken into account,” Eckmann said.

“Long-term savings, such as your retirement, should be the last place consumers turn to for short-term relief.”

Eckmann said periods of higher rates should be viewed not as an emergency, but as a stress test and an opportunity for South Africans to address their debts.

Consumers should prioritise paying off their credit card and store credit debts before tackling larger repayments, such as vehicle loans and bonds.

“Don’t fall into the minimum payment trap,” Eckmann said. “At 18% interest, paying only the 5% minimum on a R30,000 card balance keeps you in debt for around a decade.”

“This can cost approximately R12,600 in interest. Double that monthly payment to 10%, and you’re out in under 5 years, having paid R5,250.”