The National Automobile Dealers’ Association has noted that a potential reduction in interest rates is on the cards for South Africa in September, which will bring much-needed relief to cash-strapped car owners in terms of monthly finance instalments.
Additionally, it is expected that fuel prices will fall for a fourth consecutive month come the first Wednesday of September, adding to the joy motorists will experience once interest rates are slashed.
Finance
A decline in consumer price inflation (CPI) to a three-year low of 4.6% in July was well below the expected figure of 4.8%, igniting optimism over a potential interest rate cut by the South African Reserve Bank (SARB) during its next meeting in September.
The current lending rate has been set at 11.75% since 31 March 2023, the highest level we’ve seen since 2009, owing to a rapid increase in inflation as the country emerged from the Covid-19 era.
With inflation now seeming under control, the general consensus is that the SARB should start thinking about initiating a rate-cutting cycle.
Bureau for Economic Research chief economist, Lisette IJssel de Schepper, told BusinessTech that all the right ingredients are there for lower interest rates to become a reality.
“The fact that the electricity component of CPI was somewhat lower than the SARB’s latest forecast should help with a lower inflation profile going forward, as this price increase will largely determine the annual rate of change until the next survey of electricity prices,” she said.
“The oil price, however, remains sensitive to news from the Middle East, with hopes for a ceasefire between Hamas and Israel once again fading.”
Oil prices are an important consideration as they influence the cost of importing and moving goods around the country, ultimately contributing to inflation.
The economist therefore anticipates that a reduction in the prime interest rate of 0.25 basis points can be expected in September, which would bring it down to 11.50%.
The table below shows how much less you might be paying by October on your monthly car finance contract if interest rates drop by the expected 0.25 basis points.
The deal structure is based on a 72-month finance contract with no deposit or balloon payment.
| Car price | Monthly instalment at 11.75% | Monthly instalment at 11.50% | Difference |
|---|---|---|---|
| R100,000 | R2,034 | R2,021 | -R13 |
| R200,000 | R3,977 | R3,951 | -R26 |
| R300,000 | R5,919 | R5,880 | -R39 |
| R400,000 | R7,861 | R7,809 | -R52 |
| R500,000 | R9,803 | R9,738 | -R65 |
| R600,000 | R11,745 | R11,667 | -R78 |
| R700,000 | R13,687 | R13,596 | -R91 |
| R800,000 | R15,629 | R15,525 | -R104 |
| R900,000 | R17,571 | R17,454 | -R117 |
| R1.0 million | R19,513 | R19,383 | -R129 |
| R1.1 million | R21,455 | R21,313 | -R142 |
| R1.2 million | R23,397 | R23,242 | -R155 |
| R1.3 million | R25,339 | R25,171 | -R168 |
| R1.4 million | R27,281 | R27,100 | -R181 |
| R1.5 million | R29,223 | R29,029 | -R194 |
| R1.6 million | R31,165 | R30,958 | -R207 |
| R1.7 million | R33,107 | R32,887 | -R220 |
| R1.8 million | R35,049 | R34,816 | -R233 |
| R1.9 million | R36,991 | R36,745 | -R246 |
| R2.0 million | R38,933 | R38,765 | -R259 |
Fuel
Current data from the Central Energy Fund (CEF) shows that fuel prices will be adjusted downwards next month owing to a reduction in average international oil prices and the continued strength of the rand/US dollar exchange rate.
During August, the price of Brent Crude oil traded between a low of $76.05/barrel and a high of $82.30/barrel. The month prior, the black gold was rangebound between $76.81/barrel and $87.43/barrel.
The lower average prices over the past three weeks have contributed to an over-recovery in domestic fuel costs of between 64-90c/litre, depending on the type of propellant.
Simultaneously, the rand/US dollar exchange rate dropped from an average of around R18.20/dollar at the start of August to R18.11/dollar by the 23rd, slashing a further 6-7c/litre from petrol and diesel prices.
As such, the CEF expects the following fuel price changes to take effect in September:
- Petrol 93 – Decrease of 82c a litre
- Petrol 95 – Decrease of 88c a litre
- Diesel 0.05% – Decrease of 71c a litre
- Diesel 0.005% – Decrease of 97c a litre
Using petrol 95 – the most widely used fuel type in the country – as our benchmark, this is what you will save on refuelling your car if these adjustments come to fruition:
| Fuel tank size | Refueling at R23.11/litre | Refueling at R22.23/litre | Difference |
|---|---|---|---|
| 30 litre | R693 | R667 | -R26 |
| 40 litre | R924 | R889 | -R35 |
| 50 litre | R1,156 | R1,112 | -R44 |
| 60 litre | R1,387 | R1,334 | -R53 |
| 70 litre | R1,618 | R1,556 | -R62 |
| 80 litre | R1,848 | R1,778 | -R70 |
Light at the end of the tunnel
These anticipated drops in interest rates and fuel prices are the first signs of light at the end of the cost-of-living-crisis tunnel that has dominated headlines over the past year.
Should the stars align and these expectations become reality, they could contribute to a monthly savings of at least R39 when combining the reduced expenditure from both the lower fuel costs and finance payments.
At the upper bound of the spectrum, motorists stand to save up to R329 on their monthly cost of ownership, depending on the vehicle they own.
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