SARB announces the first repo rate change for 2023

On 26 January 2023, the South African Reserve Bank (SARB) announced the first repo rate change for 2023. This affects you in more ways than one as it is ultimately tied to how much interest you pay on loans and credit cards, among other things.

An important payroll-related aspect is the impact on the SARS Official Rate of Interest when calculating the fringe benefit portion of low-interest or interest-free loans granted by employers.

On Thursday, the South African Reserve Bank (SARB) increased the repo rate by 25 basis points to 7.25% and the prime lending rate has increased from 10.50% to 10.75%. This was a result of three members of the Monetary Policy Committee preferring a 25-point increase, while two voted for a 50-point increase. This follows three consecutive jumbo hikes of 75 basis points each, one may hope that this is potentially signalling that the Reserve Bank could be at the end of its hiking spell.

The Impact on Businesses

For businesses around South Africa, this means that repayment rates on loans and mortgages will become more expensive. This could have a ripple effect throughout the economy as businesses are unable to access credit or if they do, it is at an increased cost.

The Impact on Consumers

For consumers, this means that borrowing money will become more expensive across all credit products such as car loans, personal loans and mortgages. It also affects individuals who have existing debt in place since their repayments will now be higher than before due to the increase in interest rates. All these changes can put financial strain on consumers, making it harder for them to manage their money effectively.

The Impact on Payroll Departments

The SARS official rate of interest, as defined in section 1(1) of the Income Tax Act 58 of 1962 (the Act), has also increased.

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 8.25%.

Other Impacts

This latest repo rate increase comes despite December’s surprise inflation numbers which showed a slight cooling off amid power outages which SARB flagged as a risk to the country’s financial stability. These factors further complicate an already complex situation and could lead to slower economic growth and higher unemployment in South Africa over time.

In conclusion, this recent repo rate increase has far-reaching implications for both businesses and consumers alike in South Africa. While it may signal that the Reserve Bank may be at the end of its hiking spell, there are still other variables at play such as inflation numbers and power outages which could impact our economy over time.

It is important for business owners and payroll departments to stay informed about these changes so they can make sure they are adequately prepared for any potential shifts in our economic landscape as we move forward into 2023.