01 Oct Interest Rates Dropped– As Predicted by Us
On the 19th of September, the Reserve Bank unanimously voted that the repo rate should drop by 25 points to stimulate economic activity– just as Debtco Group wrote they would in the post “What to Expect with the Interest Rate Change on 19 Sep”.
Thanks to lower oil prices, a strengthening Rand, and expected petrol and fuel cuts early this month, the Monetary Policy Committee was confident that a 25-point cut was the right move, forecasting 4% interest for 2025 in lieu of the previously predicted 4.4%.
As it stands, the repo rate is 8% and the prime lending rate is 11.5%.
What’s a Repo Rate?
The repo, or repurchasing rate, is the rate at which the Central Reserve Bank lends commercial banks–Capitec, Standard Bank, FNB–money. The Monetary Policy Committee adjusts this rate to make taking out loans and spending cheaper.
How Does the Drop Affect Me?
The drop translates to lower loan rates. For example, the monthly payment on a new R2 000 000 home loan at the prime rate will decrease by nearly R260.00. This is a huge win for the South African economy, whose loan repayments have risen almost R7,000 monthly since 2021 after the COVID economy crashed.
The reserve bank’s governor, Lesetja Kganyago reported that inflation will remain on a downward trajectory next year; “The MPC anticipates the repo rate will stabilise above 7% next year.”
In his press statement on behalf of the Monetary Policy Committee on interest rates, he noted that the headline (overall inflation rate and broadest range of price changes) eased to a 3-year low of 4.4%, almost smack bang in the middle of their target range: 3 to 6%. This is a stark indication of another 25-point drop this coming November, the MPC’s next meeting date–especially in light of dropping fuel prices, the Rand getting stronger, and a relatively stable political landscape.
How Much Money Will I Save?
When the repo rate increases, borrowers face higher interest rates on their home and car loans, in turn making repayments higher. Since the repo rate has dropped a bit, we can expect to pay less on our mortgages and auto loans.
Toni Anderson of Standard Bank home services told Daily Maverick that the bank expects a further 3 25-point cuts. One this November, and 2 early next year. Homeowners could save R833 per month on a R1-million property in the next year. Provided the point drops continue as expected, we should see rates similar to those of 2020 by mid-2025. We believe that the 25-point decrease is the start of something promising and will relieve pressure on debtors and commercial creditors.
No one can see the future–whether the Rand will stabilise or if supply meets demand– so we won’t be blindly optimistic. For now, we’ll look at how much you can expect to save with September’s cut.
Bonds
On a R1 000 000 bond paid over 20 years, you can expect to save R173.00. On R1 500 000 and R2 000 000 bonds over the same term, you’ll save R260.00 and R345.00 respectively.
Auto Loans
On a 72-month contract with no balloon payment or deposit, you can expect to save R13.00 on an R100 000 car, R19.50 on an R150 000 car, and R26.00 on an R200 000 car.
These aren’t huge savings, but every little bit counts, especially when you have no money or are in major debt. If you’re struggling to make your monthly car or mortgage payments because of debt, contact Debtco Group. We help South Africans retain their assets while paying less on their debt legally and with protection from creditors in a process called debt review.
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