Relief for South Africans as Reserve Bank Cuts Interest Rate by 25 Basis Points

The South African Reserve Bank’s Monetary Policy Committee (MPC) has officially reduced the repo rate by 25 basis points, bringing it down from 8.25% to 8%. Consequently, the prime lending rate will also decrease from 11.75% to 11.50%.
This marks the first cut in interest rates after the repo rate reached a 14-year high. Reserve Bank Governor Lesetja Kganyago explained that the MPC considered several options, including maintaining the current rate and cuts of both 25 and 50 basis points, ultimately agreeing on the 25 basis point reduction to promote sustainable lower inflation in the medium term.
Regarding inflation, Kganyago noted that South Africa’s headline inflation eased to 4.4% in August, its lowest in three years and near the midpoint of the target range. He expressed optimism that this trend would continue, with inflation expected to remain below 4.5% through 2026.
On economic growth, the Governor indicated that output for the first half of the year fell slightly short of expectations. However, he anticipates improvement in the second half, projecting growth of 0.6% for both quarters, attributed in part to rising confidence and a stable electricity supply.
Impact on Bond Repayment
For homeowners, this interest rate cut will have a direct impact on monthly bond repayments. For example, if you are paying off a R1 million home loan, your monthly payment at the previous prime lending rate of 11.75% was approximately R10,837. With the new rate of 11.50%, your payment will decrease to about R10,664.
If the MPC had opted for a 50 basis point cut, your repayment would have been around R10,493. These figures are based on a 20-year bond repayment plan, illustrating how lower interest rates can alleviate financial pressure for borrowers.