South Africans paying R100 billion a year more to service their debt

South Africans are paying almost R100 billion more a year to service their debt compared to 2019 due to the country’s high interest rates, adding pressure to an already strained consumer environment.

This is according to FNB economists in the latest FNB Economic Weekly, who said interest rates have been hiked by a cumulative 475 basis points since the start of the current hiking cycle. 

After easing interest rates during the Covid-19 pandemic, the South African Reserve Bank (SARB) started raising rates in November 2021 when faced with rising inflation.

Since then, the SARB has raised the repo rate to 8.25% and the prime lending rate to 11.75%. 

FNB economists said this uptick has noticeably affected the portion of household income allocated to servicing debt.

It has risen from an annualised nominal R312 billion in the fourth quarter of 2019 to R411 billion in the final quarter of 2023. 

Despite the high interest rates, inflation also remains persistent, recently rising to 5.6% in February after averaging 5.9% in 2023. This surpasses wage income growth of 5.6% in the same year. 

“Consequently, demand, particularly that associated with interest rate-sensitive spending, has weakened and reflects a strained consumer,” the economists said. 

While the SARB’s Monetary Policy Committee (MPC) has not raised the interest rate since May 2023, “the impact on the broader economy continues to permeate”. 

Therefore, FNB’s economists said there may be a compelling rationale for the MPC to begin loosening monetary policy to uphold stability and bolster cyclical growth.

FNB’s in-house financial condition index monitors broader financial conditions beyond just interest rates.

This index suggests that, alongside tighter monetary policy, overall financial conditions are constraining economic activity in South Africa. 

The index currently stands below the neutral zero mark, indicating tighter financial conditions. 

Lately, it has been close to -1.0, which reflects a significant tightening compared to the -0.1 recorded in November 2021 at the start of the interest rate hiking cycle. 

Debt Rescue’s Annenaline van der Poel recently also highlighted the strain South African consumers are under.

Van der Poel explained that South Africa’s high cost of living has pushed many consumers to turn to credit to cover their basic necessities, which is a major concern.

She said South African consumers are facing an “onslaught from all directions”.

Consumers are not only battling high inflation and high interest rates but also facing electricity and fuel price hikes.

The latest inflation print saw CPI at 5.6%, and the inflation rate has been above 5% since September last year.

Consumers have seen two consecutive fuel price hikes in February and March, with another expected in April.

Eskom also implemented a massive 12.74% price hike on its electricity at the start of April, meaning the price of electricity has risen by 33.8% in the last two years.

“It’s just coming from all angles and affecting affordability,” Van der Poel said. “It’s affecting people’s ability to put food on the table without looking at credit. It’s very, very dire out there.”