On Thursday, 24 November 2022, the South African Reserve Bank increased interest rates by a further 75 basis points, just two months after the last interest rate increase on 22 September 2022.
The latest increase resulted in rates climbing to the highest level since 2016!
This increase in basis points brings the repo rate to 7% and the prime lending rate has increased from 9.75% to 10.50%.
For homeowners, this means that for a new home loan of R2 million at the prime rate, the monthly instalment will rise by R1 000 due to the interest rate increase. Due to numerous rate increases since November of last year, the home loan’s monthly payments are now over R4 500 more expensive.
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 8%.
The Reserve Bank is under pressure to raise interest rates in order to curb inflation and safeguard the value of the Rand.
The prolonged Russian war in Ukraine hinders trade and drives up the cost of numerous goods, including food, energy, and other necessities.
Foreign investors seeking high profits are drawn to higher interest rates. The Rand needs foreign capital inflows to be stable, and South Africa’s interest rates have long been competitive with those in other nations.
However, other countries—most notably the US—have aggressively increased their interest rates in recent months to control inflation. Being left behind is not an option for South Africa.