What is the Impact of Inflation Rate on Interest Rate in South Africa?

There is an important connection between inflation and interest rates. The primary mandate of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth. 

In South Africa, we have seen this connection play out over the past few years. As inflation has risen, so too have interest rates. This has put pressure on consumers and businesses, as they have had to contend with higher borrowing costs.  

Interest is the percentage charged on the total amount you borrow, or is the percentage earned on the total amount you save. Inflation is the rate at which the price for goods and services are being increased. 

What does it mean to make money more expensive?

Due to the high inflation we are currently experiencing in South Africa, The Reserve Bank curbs inflation by increasing the interest rate, essentially, making money more expensive to borrow. The Reserve Bank has to increase interest rates to stop inflation from rising.

How does this affect your bond repayments?

The interest rate on a home loan will vary depending on what the bank is willing to offer, and how much of a risk they consider you to be. Aside from your own financial situation, a significant factor affecting interest rates will be the repo rate, which is determined by the South African Reserve Bank, which refers to the rate at which the SARB will lend to commercial banks. The repo rate in turn determines the prime lending rate plus what the banks add on in order to make a profit.

This is directly affected by your credit score and differs between banks, making it essential for you to look around for the best option for you. 

Our partners at Ooba Home Loans are South Africa's leading experts in home loans and can easily guide you through the process of applying for a loan even if it is your first time applying for a loan.

Contact your Realtors area agent today and find the best way for you and your family to survive the price hike.