REMINDER | Interest rate announcement today: What to expect

The South African Reserve Bank’s (SARB’s) monetary policy committee (MPC) will meet on Thursday, 19 September – and there’s likely to be some GOOD news for those drowning in debt.

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The official announcement is due shortly after 15:00.

The MPC is widely expected to cut interest rates by 25 basis points (bps).

As a reminder, the repo rate currently stands at 8.25% with the prime lending rate at 11.75%.

The MPC has hiked interest rates by a cumulative 475 basis points since 2021, despite keeping the rate unchanged at the last seven meetings.

The current repo rate of 8.25% represents a 15-year high (since 2009) and has had scores of South Africans desperately struggling to finance their debt.

Encouragingly, while four members of the MPC voted to keep rates unchanged at the most recent meeting in July, two at the time already voted for a 25 basis point cut. 

What would a 25 basis point cut mean in monetary terms?

By way of an example (see graph below), a bond of R5 million over a standard 20-year term with repayments at prime (11.75%) currently costs an eye-watering R54 185 per month to finance.

Should the SARB cut the prime lending rate by 25 basis points to 11.50%, that will mean a new monthly bond repayment requirement of R53 321.

That represents a monthly saving of R864.

Over the course of 20 years (240 months), that equates to a saving of R207 360 – on the assumption there would be no further rate changes during that period.

But here are the scary numbers!

To currently finance a R5 million bond over 20 years at prime does NOT cost R5 million – or anywhere close to that figure.

In fact, it costs a staggering R13 004 485.

Do the sums yourself.

R54 185 x 240 months = R13 004 400 (give or take a few cents per month).

A rate cut of 25 basis points, as mentioned, reduces the monthly repayment to R53 321.

That changes the total repayment over 20 years to:

R53 321 x 240 months = R12 797 040.

But here’s the scariest part …

As mentioned, the SARB has hiked interest rates by 475 basis points over the last three years, meaning as recently as 2021 the prime lending rate stood at 7%.

The same calculation above on a R5 million bond at prime (7%) over 20 years once cost R38 765 per month.

That’s R15 420 less per month than it currently costs (before any rate change this week).

Or … R3 700 800 over the course of the full 20 years if you prefer.

SARB MPC MEETING DATES FOR 2024

The MPC meets every second month.

The SARB’s final meeting of the year will take place on Thursday, 21 November, where, according to BusinessTech, another 25 basis point cut is potentially on the cards.

Monthly bond repayments calculator

The South African website’s table below shows the current monthly bond repayments on various bond values over a 20-year period assuming no deposit and that repayments are at prime (11.75%) as well as the expected cost after next week’s 25 basis point cut and the monthly saving that would entail:

To rent or pay off a bond: What do YOU do?

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