How the South African Reserve Bank's interest rate cut affects your finances

South Africans are breathing a sigh of relief after the recent interest rate cuts; however, economists warn that the cut does not equate to growth in the economy.

"The interest rate cut is well welcome, it will help people spare some money; however, it doesn't translate to job creation or economic growth," economist Dawie Roodt said.

"The same amount will enable a few more things to rotate in the economy, because when people spend less on one item, they'll spend some of the remainder on something else," he said.

"For the economy to grow, we need more than interest rate cuts; we need macroeconomic policy changes."

The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) on Thursday announced a 25 basis points cut to the repo rate and the prime lending rate, taking them to 7% and 10.50% respectively.

The cut came into effect on Friday, August 1, much to the jubilation of South Africans who were already struggling with the strenuous cost of living.

The MPC meets six times a year to deliberate on the interest rate as part of efforts to manage inflation and promote economic growth.

There is an expectation of further cuts in line with the SARB's inflation target of 3 to 6%.

Dr Azar Jammie, Chief Economist at Econometrix said the cut would bring relief to people who have bonds and other loans.

"Cutting the interest rate by a quarter of a percent helps people save some money, especially those paying off loans and houses."

Jammie said that South Africans need a bearable cost of living, especially given the job scarcity.

Tshepo Rakgoathe, 25, said the rate cut was good news.

"This is very good news, I am paying for my car's installment, and I want to ask for a home loan. I am just waiting for communication from the bank informing me that I will now pay a certain amount less from my monthly installment."

The Star