The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has decided to finally cut the interest rate. The repo rate was cut by 25 basis points (bps) and will fall from 8.25% to 8%.

This means the prime lending rate will drop from 11.75% to 11.50%. The repo rate had been on a 14-year high before this cut by the MPC.

The Reserve Bank Governor, Lesetja Kganyago said in discussing the stance, MPC members considered an unchanged stance, a 25bps, and a 50bps cut.

“The MPC ultimately reached consensus on 25 basis points, agreeing that a less restrictive stance was consistent with sustainably lower inflation over the medium term,” he said.

On inflation, Kganyago said that South Africa’s headline eased to 4.4% in August, a 3-year low, and close to the middle of our target range.

“Our forecast suggests this progress will be sustained, with inflation contained below the 4.5% midpoint of our range through to the end of the forecast horizon, in 2026," he added.

On SA’s economic growth, the Governor said that output was marginally below their expectations for the first half of the year.

“We expect improvements in the second half, with growth of 0.6% in both quarters. This reflects rising confidence, in part due to a stable electricity supply,” he added.

“We also expect extra spending given withdrawals from the new Two-Pot retirement system, although some of these funds will be absorbed by debt repayments and tax.”

How will lower interest rates impact your bond repayment?

If you are paying off a R1 million home loan, your monthly bond repayment was around R10,837 a month at the current prime lending rate of 11.75%. Now that the Reserve Bank has decreased the lending rate by 25bps to 11.50%, your bond payment will now be around R10,664. This would have been a saving of R173.

If we were to have received a 50bps cut, your bond repayment would be R10,493, meaning R344 back into your pocket.

These calculations are based on a 20-year bond repayment plan.

IOL BUSINESS