On Thursday, 30 March 2023 the South African Reserve Bank (SARB) announced a surprise 50 basis point increase to the repo rate, taking it to 7.75% and pushing the prime lending rate of commercial banks to 11.25%.
Some predicted that the interest rate would be increased by only 0.25% while others expected it to remain unchanged, sadly none of the experts were correct.
This is the second hike in interest rates for 2023 and has caused some major concern amongst home and vehicle loan holders who are immediately absorbing an increase in the cost of financing.
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.
With the latest hike, rates have reached their peak in over a decade – since June 2009 when global economic challenges weighed heavily on our financial system.
Furthermore, this marks the 9th rate hike since November 2021 when the rate-rollercoaster cycle started, resulting in a scary 425 basis points increase in total.
Impact on Home & Car Loan Holders
The bigger-than-expected repo rate hike announced by the SARB will put even more pressure on those with home and car loans, immediately pushing up the cost of financing. It is important for those affected by this increase in interest rates to be aware that their monthly payments will rise due to this change.
Impact on Taxpayers
The SARS Official Rate of Interest, as defined in Section 1(1) of the Income Tax Act 58 of 1962, has also increased from 8.25% per annum to 8.75%. This change is effective 1 April 2023.
Reminder: 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 that 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.