The South African Reserve Bank (SARB) recently announced a significant interest rate increase, raising the repo rate by 50 basis points to 4.75%—effective 20 May 2022. While the move didn’t come as a complete surprise, it marked a notable shift from the more moderate 25-point adjustments that had become typical in recent years.

This decision by the Monetary Policy Committee (MPC) immediately impacted the prime interest rate, which is the rate at which commercial banks lend to consumers. Since the prime rate is directly linked to the repo rate, any adjustment by the SARB trickles down to affect loan repayments, especially those tied to home loan interest rates.

Understanding this relationship is crucial. When the SARB raises the cost of borrowing for banks, financial institutions pass that cost onto consumers, leading to higher debt servicing costs for mortgages, vehicle finance, and personal loans.

Why the SARB Raised Rates: Global Pressures and Local Realities

In its official statement, the SARB cited rising inflation as the primary reason for the latest interest rate increase. Much of this inflation stems from external factors—most notably, the Russia-Ukraine conflict—which continues to destabilise global supply chains. The result? Soaring food and fuel prices, making daily essentials more expensive for households across South Africa.

This comes on the heels of a fragile recovery from the Covid-19 pandemic, which had already strained economic growth and disrupted trade. With inflation now accelerating beyond manageable levels, central banks worldwide are being forced to act. South Africa is not alone: the United States Federal Reserve raised its rate by 50 basis points (its most aggressive move in over 20 years), while India and the UK also implemented sharp hikes.

Locally, the Reserve Bank revised South Africa’s 2022 growth forecast down to 1.7%—a downgrade linked to persistent energy issues and the economic fallout from the KwaZulu-Natal floods. As global and domestic challenges mount, the upward trend in rates is expected to continue, making it all the more important for consumers to understand how shifts in the prime rate affect their finances.

What This Means for Homebuyers and Borrowers

For consumers—especially those with mortgages—the rise in the prime interest rate has immediate consequences. Since home loan interest rates are typically linked to the prime rate, any increase raises monthly bond repayments. This puts added pressure on household budgets already stretched by rising fuel, electricity, and grocery costs.

The key question many are now asking is whether to opt for a fixed interest rate or a variable one. A fixed rate offers short-term security by locking in repayments, which can be reassuring in a period of upward rate adjustments. However, fixed rates are often slightly higher than variable rates at the outset—and if the prime rate begins to drop again in the future, fixed-rate borrowers may miss out on potential savings.

A variable rate, on the other hand, moves in line with the SARB’s repo rate decisions. This means your bond repayments can increase or decrease over time. Choosing the right option depends on your personal risk tolerance, financial stability, and long-term plans.

With prime rate history showing clear cycles of rise and fall, there’s no one-size-fits-all answer. But one thing is certain: understanding how interest rate decisions affect your debt obligations is essential in managing your financial wellbeing in a volatile economy.

Planning Ahead in an Uncertain Rate Environment

With more interest rate increases expected in the near term, South Africans need to take a proactive approach to their financial planning. Whether you're applying for a new bond, reviewing your current loan structure, or weighing up the benefits of a fixed versus variable interest rate, staying informed can help you make smarter decisions.

A closer look at prime rate history reveals that periods of volatility are not new—but navigating them requires practical knowledge and a firm grasp of how monetary policy decisions by the SARB affect your day-to-day finances. For many households, even a slight rise in home loan interest rates can mean a significant monthly cost difference.