Repo rate cut too low to help South African consumers who can’t afford food

South African consumers can be forgiven for their lukewarm reaction to the Reserve Bank cutting the repo rate by just 25 basis points, although many will breathe a sigh of relief at the thought of at least a little respite over the festive season.

South African Reserve Bank (SARB) Governor Lesetia Kganyago has kept his promise to begin a cycle of slow rate cuts that began in September this year when the repo rate was cut for the first time in more than four years, with his announcement of a second repo rate cut in November explaining that the fact that the decline in inflation in October and the rise in the Rand exchange rate influenced the Reserve Bank’s decision.

The Monetary Policy Committee (MPC) increased the repo rate by a huge 475 basis points from November 2021 after the worst inflation pressures hit the South African economy since the Covid-19 pandemic.

As a result, the repo rate reached a 15-year high of 8.25% and remained at that level until the first rate cut in September, which brought it down to 8%. The latest cut brought the repo rate down to 7.75%.

READ ALSO: Reasons for reducing the repo rate by only 25 bps. unconvincing – economist

Economists warn inflation will rise again after repo rate reduction

Economists warn that risks to rising inflation have increased since the MPC meeting in September, with the biggest risk coming from the United States and the policies of President-elect Donald Trump. However, others disagree, arguing that Trump’s decisions will have little impact on interest rates.

Investec chief economist Annabelle Bishop says the rand continues to rise above R18.00 to the US dollar as risk aversion to commodity and emerging market currencies has increased.

But there is hope in the form of an upgrade in the credit rating outlook from Standard and Poor’s, which adjusted the country’s outlook to “positive.” This means South Africa could be eligible for a rating upgrade, which would significantly increase the value of the rand.

However, Neil Roets, CEO of Debt Rescue, says that despite the economic pressures, ordinary South African consumers continue to bear the brunt of the highest interest rates the country has faced in a decade, as well as the relentless rise in the cost of living. a shortage crisis that is rapidly worsening and a seasonal drought that could severely impact food crop availability ahead of the festive season.

“This means we could see families across the country struggling with food insecurity and even higher food prices. While the reduction in repo rates is a step in the right direction, it is not surprising that this small reduction in borrowing costs will not make a noticeable difference in the lives of millions of struggling households across the country. This will certainly not provide food for millions of families in need.”

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Shocking Statistics from the National Food Security and Nutrition Survey

He notes that recent shocking statistics from the National Food and Nutrition Security Survey paint an alarming picture of widespread food insecurity across the country, showing that nearly two-thirds (63.5%) of households currently have difficulty accessing adequate food. at the same time, many are reducing its consumption. on the quantity and quality of food and they are prepared daily.

This was measured using the Household Food Insecurity Score (HFIAS), a measure that measures the severity of food insecurity at the household level.

“The study results also highlighted the triple burden of malnutrition facing South Africa. This includes not only hunger, but also “hidden hunger” (micronutrient deficiencies) and rising rates of obesity due to diets low in nutrients. This should raise alarm bells among the country’s leaders if nothing else happens,” says Roets.

“It is deeply concerning that so many children across the country can no longer count on enough nutritious food to eat every day. This means they are sent to school hungry, unable to concentrate and perhaps even more anxious, susceptible to all sorts of illnesses because their nutritional needs are not met.

“It makes sense that the situation has been exacerbated by sharp increases in the prices of staple foods such as meat (91%), vegetables (50%) and potatoes (75%) over the past few months, as reflected in the recent debt report. Rescue survey.”

ALSO READ: ‘Many households are food insecure’: Study reveals ‘grim picture’ for ordinary poor South Africans

Study shows serious decline in food security – the reduction in the repo rate did not help much

The South African Food Security Index 2024, compiled by Stellenbosch University professor Dieter von Fintel and Dr Anja Smith, paints a grim picture of a sharp decline in South Africa’s food security, from 64.9 in 2019 to 45.3 in 2023, as well as child hunger. becomes an ongoing problem.

This prompted Africa’s largest food retailer Shoprite to call for bold government policy action to combat hunger and malnutrition.

Roets says he supports this, noting that these statistics should at least send shockwaves through the halls of government and the boardrooms of corporate South Africa.

“The fact that this is not at the top of everyone’s priority list is concerning to say the least. We already have 30.4 million people living below the upper poverty line of R1 634 a month and that number will just continue to rise unless we find a way to quickly bring down food prices,” he warns.

“While I understand that global factors such as conflict contribute to rising food prices, there are factors such as the repo rate and food price monitoring that, if managed, can ease the cumulative pressure on consumers. Much more urgent action is required, especially from large retailers who benefit from high food prices.”

READ ALSO: Households are worried that food will run out before the end of the month

Harvest season under threat due to little rain

As if consumers don’t have enough problems to deal with, South Africa’s 2024/25 crop season hangs in the balance as hot and dry conditions persist, leading to growing anxiety among farmers facing potential crop losses.

According to Absa AgriBusiness, such weather conditions pose a serious threat to crop production, especially if rainfall does not occur on time.

Dr Marlene Lowe, the organisation’s senior economist, is closely monitoring the situation and advises that “adequate rainfall over the next few days is critical, particularly in the eastern parts of the country as the summer grain and oilseed planting season begins. »

However, on a more positive note, Wandile Sihlobo, chief economist at the South African Chamber of Agricultural Business (Agbiz), notes that “optimistic forecasts of good rainfall over the next two weeks” could prove beneficial for the sector.

Roets says while we look forward to more rainfall, people across the country are preparing for a lean holiday season.

“Desperate for some relief after a difficult year, they will rely even more heavily on their credit cards and store cards to be able to somehow celebrate the holiday season. A growing number of people are turning to short-term loans and lines of credit to get through the month, ending up in a vicious cycle of debt that is difficult to break.”