The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has cut interest rates by 0.25 basis points (bp) with the repo rate as of 20 September 2024 pegged at 8.0% and the prime lending rate at 11.50%.
This is the first time since May 2023 that the SARB has changed the country’s rates, a decision that was supported by slowing inflation, an improvement in the rand/US dollar exchange rate, and a common trend among global central banks to move to a more dovish stance.
The development is a major boon for South Africans who are financing their cars on a linked interest contract, as they will be paying less on their finance instalment from September onwards.
The table below shows how the new interest rate of 11.50% will impact your monthly car finance contract, based on a 72-month deal 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 | R38,675 | -R258 |
Murky outlook
In discussing the move to lower rates, MPC members considered an unchanged stance, a 25bp cut, and a 50bp cut. They ultimately reached a consensus on 25bp, agreeing that a less restrictive stance was consistent with sustainably lower inflation over the medium term.
More rate cuts could be on the cards for 2025, should market conditions persist.
“The forecast sees rates moving towards neutral next year, stabilising slightly above 7%,” said the SARB.
“As before, the rate path from the Quarterly Projection Model remains a broad policy guide, changing from meeting to meeting. Decisions of the MPC will continue to be data dependent, and sensitive to the balance of risks to the outlook.”
The institution warns that things could change at a moment’s notice, both for the better and the worse.
“There are scenarios where inflation could undershoot the baseline forecast, if oil prices are lower or the exchange rate appreciates further,” it said.
“Conversely, inflation could be higher than our baseline forecast given scenarios such as higher housing costs, larger electricity price increases, or wage increases that outrun inflation and productivity growth. Meanwhile, food inflation is a source of uncertainty, despite recent improvements.”
Global conditions pose additional challenges, with risks such as trade restrictions and rising debt levels remaining prominent.
“This mix could add significant inflationary pressure to the world economy, generating tighter financial conditions for South Africa and other countries,” said the SARB.
The MPC will meet for the last time this year on 21 November 2024.
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