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Many South African consumers find themselves waiting in vain for relief from the effects of suffocating high interest rates. Economists say we're in for a bumpy ride, but there's some light at the end of the tunnel. The South African Reserve Bank (SARB) will reportedly leave its repo rate unchanged in 2023, but are proposing a cutting cycle mid-2024 to reduce 25 basis points per quarter, as inflation is expected to slow in this period.
Generally, the higher the inflation rate, the more interest rates rise. This usually happens because lenders need to secure higher interest rates as compensation for the decrease in purchasing power of the money they're repaid in the future. Inflation also decreases the demand investors have for property-based bonds. When demand drops, the cost of bond-backed securities drops. This results in increased rates for all types of bonds and lending.
A large indicator of improvement for SA is that the United States is due to cut interest rates next year, and so the SAR is predicted to do the same. Inflation is expected to slow in SA in the coming months and average 4,9% next year as opposed to the current 5,9%, and is predicted to fall to 4,6% in 2025. The SARB prefers inflation to remain at between 3% and 6%. Subsequently, economic growth is estimated to be 0,3% this year and 1,2% in 2024.
Will Brics pave the way to recovery?
Much has also recently been reported about Brics, the agreement that originally included only Brazil, Russia, India, China, and South Africa. Brics is expected to strengthen collaboration in SA's crucial economic sectors – as identified in the Economic Reconstruction and Recovery Plan – such as energy, information technology, science, technology and innovation, agriculture, and the green economy.
Since SA joined the Brics grouping, several other countries have expressed interest in joining, including Argentina and Iran, with a view to create a geopolitical counterweight to the mighty G7 and potentially a framework to reduce dependence on Western financial systems. SA appears to be starting the slow and steady road to economic recovery.
“This is potentially good news for the long-term financial benefits of the average consumer, with lowering interest rates alleviating some of the burden created from the effects of inflation and soaring cost-of-living prices as a result of the effects created by the protracted pandemic,” says Rowan Breeds, a director of one of SA's leading debt counselling companies.
However, he urges consumers to be cautious, warning that the effects of lowering both inflation and repo rates would take time, and even longer for the effects to trickle down through our fragile economy. “There's no ‘quick fix’ to consumers’ current financial constraints other than maintaining healthy spending behaviour within a household’s means, relying less on credit, and thoughtful, proactive, intentional monthly and annual budgeting setting achievable, trackable goals,” he adds. Though the forecast for South Africa’s economy seems to be improving, Breeds urges caution as it's impossible to accurately predict the state of the global economy and its effects on our own market.
Professional debt counselling
Rowan Breeds is a qualified debt counsellor and director for Debt Solutions4U, one of the fastest-growing and industry-leading debt counselling companies in SA. SA, with its National Credit Act, is one of only a handful of countries with legislation which governs, drives, and holds accountable its debt counselling services to assist consumers in escaping the effects of debt spirals. Debt counselling companies such as Debt Solutions4U provide consumers with a professional, government-accredited debt counsellor who works out a consolidated debt repayment plan, obtains a court order protecting consumers from their creditors, protecting their assets, reducing interest rates, reducing monthly instalments to a manageable amount, and finally assisting in rebuilding consumers’ credit.
Breeds recommends consumers work within their existing budgets and, if necessary, rather seek help from an accredited debt relief service before falling into the trap of borrowing more to cover monthly costs and incurring more debt to relieve existing debt. There are other forms of debt assistance in SA, but it's important to be careful as many who advertise their services as “debt mediators” aren't licensed and therefore not accountable or accredited to the National Credit Regulator. If looking for assistance, always look for an NCR licensed and accredited debt counsellor or debt relief company.
This post and content is sponsored, written and produced by Debt Solutions4U.
