On 22 September 2022, the South African Reserve Bank increased interest rates by 75 basis points, just two months after the last interest rate increase.
The latest increase resulted in rates returning to their pre-pandemic levels.
The 75 basis point hike was favourably voted for by three members of the monetary policy committee. However, two members of the committee wanted a 100 basis point increase.
This increase in basis points brings the repo rate to 6,25% and the prime interest rate to 9,75%.
For homeowners, this means that the monthly repayment on a R2 million home loan will increase by roughly R950. Monthly payments on a R2 million home loan have increased by over R3 000 since November last year due to several rate hikes.
Note: The SARS official rate of interest, as defined in section 1(1) of the Income Tax Act 58 of 1962 (the Act), therefore has also increased.
This means that where a loan is granted to an employee by his or her employer and no interest is charged by the employer, or where the interest charged by the employer is less than the official rate of interest, the difference between the amount which would have been payable if the loan was granted at the official rate and the amount actually paid by the employee, is taxed as a fringe benefit.
The SARS official rate of interest is the Repo Rate, plus 100 basis points (1%). The SARS official rate of interest is therefore adjusted to 7.25%.
The bank is under pressure to keep up with huge interest rate hikes present in other countries, especially in the US, where rates were increased by 75 basis points on Wednesday, despite the fact that the rate increases will cause greater harm to the struggling South African economy.
The invasion of Ukraine, supply chain shocks, a labour shortage, and an inflation shock, have caused central banks worldwide to rush to raise interest rates.
The Rand and local assets like bonds may lose their appeal to foreign investors who are looking for good returns if South Africa fails to keep up with rate hikes. For the Rand to remain stable, foreign investment is essential. A stable Rand is vital to limiting inflation as South Africa imports almost all of its oil, which is priced in dollars.
The Rand is currently under a lot of pressure as a result of the aggressive US rate hikes. After beginning the year below R16, it is currently close to R17.80/$. Additionally, the Reserve Bank must make it clear that it wishes to control inflation.
Another Monetary Policy Committee meeting is scheduled for November. Even though inflation may have peaked, many anticipate another rate increase.