While there have been some recovery, households remain under significant financial strain.
A household resilience report has revealed a “modest improvement” in the financial position of South African households, with the ratio of household debt costs higher than in 2021.
According to the Altron FinTech Household Resilience Index (AFHRI), the improvement was mainly due to three cuts of 25 basis points each in the repo rate between September 2024 and January 2025.
This led to the lowering of the prime overdraft rate to 11% from a record high of 11.75%.
Not out of the woods
Economist Dr Roelof Botha, who compiled the report, said households are not out of the woods yet.
“At the latest meeting of the Monetary Policy Committee (MPC) of the Reserve Bank the rate-cutting cycle was halted, which will prevent the debt cost burden of households from dropping to a level that would encourage a more permanent recovery of household expenditure.”
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Bonuses and temporary job
The increase in the AFHRI during the fourth quarter of 2024 also reflected the influence of year-end bonuses paid to employees, as well as temporary jobs created during the December holidays, especially in the tourism and retail sectors
“Withdrawals from pension funds and other investments related to the so-called two-pot system artificially inflated the performance of the AFHRI, an effect that is likely to become more subdued during 2025 and that is detrimental to the financial disposition of households in the longer term,” the report showed.
Household debt costs
According to the report, although the ratio of household debt costs to disposable income has declined to 8.9%, this remains significantly higher than the 6.8% level in 2021.
“This is prior to the decision by the MPC to adopt a restrictive monetary policy stance at a time when the economy had embarked on a fragile recovery from the Covid-19 pandemic.”
The report also showed that the cost of credit (and capital formation) in the South African economy remains 31% higher than four years ago, one of the main reasons for the lethargic economic growth rate that moved in tandem with each increase in the repo rate.
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Financial strain
MD of Altron FinTech, Johan Gellatly, stressed that while there has been some recovery, households remain under significant financial strain following a period of high interest rates.
“The marginal interest-rate cuts have provided some small relief, but more substantial monetary policy easing is required to meaningfully improve household financial resilience, especially in the face of the diminished global growth figures anticipated this year.”
Gellatly warned that without further cuts, South Africa risks prolonged economic stagnation, as consumer spending remains subdued.
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