Expert warns: High borrowing costs threaten household budgets and business growth
Economist Dr Roelof Botha has criticised South Africa’s current interest rate environment, saying high borrowing costs continue to place pressure on household
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Economist Dr Roelof Botha has criticised South Africa’s current interest rate environment, saying the high cost of borrowing affects households, constrains business growth as well as affordable credit.
The prime lending rate currently sits at 10.25%, which makes borrowing costly for both homeowners and businesses. Botha argues that the rate should at least fall to 9% or lower.
This comes after the latest Altron FinTech Household Resilience Index showed a modest year-on-year improvement, indicating that while South Africans are managing to cope with financial pressures, many households are relying on short-term measures, such as accessing retirement savings, to meet expenses.
According to reports, a 1.25% drop in the prime rate could save homeowners about R1,388 per month on a R1.695 million bond, and around R1,638 on a R2 million bond.
"The prime rate in South Africa should be 7%. If that happens, this economy will grow between 3% and 4% within the next year..." Botha told Altron FinTech.
He also said that high interest rates limit economic activity and making it more difficult for households and businesses to manage costs.
“There’s a lot of activity on the pension fund side, but unfortunately, these are people dipping into their pension funds. These withdrawals are capped, taxed, and ultimately risky for long-term financial security.”
Botha emphasised that, despite these pressures, South Africans continue to show resilience in managing their finances. He further noted that the high cost of borrowing not only affects households but also constrains business growth and entrepreneurship.
“It is difficult for entrepreneurs in this country to allow the advent of capitalism to come to the fore because it just costs so much more than it does in Western Europe and in North America.”
He stressed that a more supportive interest-rate environment could provide much-needed relief for households and stimulate economic activity.
“We are sitting with this dilemma that we need deep interest rate cuts, and our prime overdraft rate should be 9% or lower.”
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