The decision late last month by the South African Reserve Bank’s (SARB’s) monetary policy committee (MPC) to cut interest rates by 25 basis points came as welcome news to those South Africans in debt.
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After a financially difficult year for many, there was some good news ahead of the festive season.
The decision by the six-man committee was unanimous and saw the repo rate drop to 7.75% while the prime lending rate now stands at 11.25%.
The news came as an early Christmas present for those homeowners with monthly bond repayment commitments – and good news for those looking to enter the property market for the first time.
However, while the news was seen as ‘good’ by those in debt, caution needs to be exercised at the same time.
“Interest rate cuts generally spur consumer confidence. A 25% rate cut may be perceived as beneficial for South African consumers. While it encourages people to spend more and even contract more loans due to the lower interest rates, at the same time, keeping interest rates too low for too long may damage the economy in the long run”, said Terence Hove, Financial Markets Strategist Consultant at Exness.
While many homeowners were hopeful of a 50 basis point cut, that could well become a reality at the next meeting on Thursday, 30 January 2025.
What does a 25 basis point cut mean in monetary terms?
As laid out in the table below, the saving after the latest announcement varies depending on the bond figure.
For a bond of R500 000, the saving is ‘only’ R84 per month – or R20 160 over the full 20-year repayment period.
However, for a bond of R5 million, that saving quickly ramps up to R858 per month – or R205 920 over the full duration.
In times like these, every cent counts!
Monthly bond repayment table
The South African website’s table below compares the now old monthly bond repayments on various bond values over a 20-year period assuming no deposit and repayments at prime, to the new cost after the interest rate cut – and the monthly saving that entails:
BondOld (11.5%)New (11.25%)SavingR500 000R5 330R5 246R84R750 000R7 998R7 869R129R800 000R8 531R8 394R137R850 000R9 065R8 919R146R900 000R9 598R9 443R155R950 000R10 131R9 968R163R1 000 000R10 664R10 493R171R1 458 924R15 558R15 308R250R1 500 000R15 996R15 739R257R2 000 000R21 329R20 985R344R2 500 000R26 661R26 231R430R3 000 000R31 993R31 478R515R3 500 000R37 325R36 724R601R4 000 000R42 657R41 970R687R4 500 000R47 989R47 217R772R5 000 000R53 321R52 463R858
SARB MPC MEETING DATES FOR 2025
Meeting monthDateJanuary30 JanuaryMarch20 MarchMay29 MayJuly31 JulySeptember18 SeptemberNovember20 November
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