SA Reserve Bank holds rates steady but inflation continues to squeeze consumers

South Africans received some much needed reprieve this past week, as the South African Reserve Bank's (Sarb) Monetary Policy Committee (MPC) voted to keep the repurchase rate (repo rate) unchanged on Thursday. This means that the prime lending rate in the country will also remain at 10.50% which will bring temporary relief to indebted consumers , but financial experts have warned that households remain under immense pressure as inflation and the cost of living continue to erode disposable income. The MPC opted to keep borrowing costs unchanged, a move welcomed by debt counselling firm Debt Rescue . However, the organisation cautioned that the decision does little to address the financial hardship experienced by millions of South Africans. Debt Rescue chief executive Neil Roets said that while avoiding another increase in interest rates was positive news, consumers remained caught in a difficult financial environment. "While we are undoubtedly glad that the Sarb's MPC chose to leave the repo rate untouched at 7.0%, we have to remain realistic about what this outcome actually delivers for everyday households," Roets said. "Avoiding another escalation in borrowing costs provides a welcome sigh of relief, but holding the line does nothing to erase the punishing reality of 5% inflation continuing to devour household budgets." Roets said Debt Rescue continued to see the severe impact of elevated borrowing costs on households across the country. "In our daily interactions with consumers at Debt Rescue, we see people who have reached the absolute end of their tether. Keeping interest rates pinned at these restrictive levels means the prime lending rate remains locked at 10.50%, leaving families trapped beneath crushing monthly financial obligations." He said many consumers were sacrificing essential services simply to survive. "Across the country, consumers are constantly forced to sacrifice vital services like medical aid and basic nutritional staples just to keep their heads above water. Stagnant earnings offer no defence against soaring living expenses , forcing people to rely on credit simply to bridge the widening gap." Roets said the MPC's split decision highlighted that uncertainty over the interest rate outlook remained. KPMG lead economist, Frank Blackmore said that during the Sarb governor's address, he brought up the risky issues impacting the economy currently. "Blackmore said, "The potential upside risks to inflation was also flagged based on the geo political tensions. He also spoke about the resilience of the rand and the economy's relatively good performance in the first quater, growing at 2%." "The governor also said, however that the MPC will continue to make their decisions based on data, and there could be a hike later in the year. I think one of the biggest reasons to keep the rate unchanged was the inflationary reads we were getting along with future inflationary reads for the next year, which showed it being still in line with expectations and the bank's model, and therefore did not require further action to be taken at this point," Blackmore said. "The divided stance within the Reserve Bank makes it abundantly clear that financial pressures will not subside anytime soon." Hayley Parry, Money Coach and Facilitator at 1Life's Truth About Money, told Business Report that Thursday was quite a day as the price of oil soared to over $100 per barrel, Sarb left the repo rate unchanged in a surprising move. Parry said, "This decsion comes with renewed inflationary pressure along with consumer inflation rising faster than expected in June. Consumers can relate to that as South African households are under severe financial pressure." "While the Sarb announcement is encouraging news for consumers who hold any kind of debt, it is not an all clear. Sarb has bought us some time and the question is, what are we going to do with it? My advice as always is to use the opportunity to try and get yourself a head start by putting some money aside into your emergency savings fund, pay down some high interest debt and really give yourself the opportunity to make things a little easier for yourself. This is because there is definitely no certainity that this is a trend." Roets added that Debt Rescue's recent consumer survey painted a concerning picture of household finances. "When we surveyed consumers recently, nearly half admitted they had no idea how they would survive financially if borrowing costs stayed elevated." Roets said what initially appeared to be temporary financial strain had become a lasting structural challenge for many South African families. "This hardship highlights a profound structural shift. What initially looked like temporary belt tightening has hardened into the permanent new normal for South African household economics, made even worse by mid year municipal tariff increases and relentless fuel and food price hikes." He warned that salary increases were failing to keep pace with the rising cost of essential goods and services. "When basic household necessities outstrip salary increases by such massive margins, family balance sheets face structural collapse regardless of how carefully individuals budget." Roets said households were increasingly being forced to make impossible financial choices between essential expenses. "Households are now forced into impossible daily compromises between keeping transport running, paying for electricity, and putting food on the table." He added that rising grocery costs and widening income shortfalls had driven more consumers towards credit. "With grocery basket costs climbing further and lower income families facing staggering shortfalls, reliance on credit has skyrocketed to dangerous heights, leaving more than half of all consumers spending over 40% of their net monthly income just to service existing debt." Roets urged consumers experiencing financial distress to seek assistance before their situation deteriorated further. "With the vast majority of South Africans buckling under severe financial pressure, recognising the warning signs early is critical." "While pausing rate hikes offers a momentary pause in the storm, navigating a clear and lasting path out of over indebtedness requires taking proactive steps before mounting pressure turns into a crisis."