South Africans are bracing themselves for yet another interest rate hike, which will make it increasingly challenging for households to make ends meet. If the projections are correct, the upcoming hike will mark the tenth consecutive increase since November 2021. The South African Reserve Bank’s Monetary Policy Committee is expected to announce the hike on May 25.

The Bureau for Economic Research predicts that the SARB will raise the repo rate by 25bps, but a surprise hike of 50 basis points cannot be ruled out. The rand has taken a hit due to allegations that South Africa sold arms to Russia, exacerbating the situation for households already under strain.

The impact of previous rate hikes has been severe, causing cash-strapped South Africans to pay more on monthly instalments, such as bonds and vehicle asset financing. A further hike will only add to the financial pressure on these households.

According to DebtBusters, credit has become increasingly burdensome for many consumers as interest rates rise. The average bond rates have increased from 8.3% to 11.4% per annum in a short space of time, while the average vehicle finance rates rose from 12% to 14.8% during the same period. This means that consumers will have to pay significantly more each month, making it harder to make ends meet.

As a result of these increases, many consumers are turning to personal loans, with 96% of people who apply for debt counselling having a personal loan. This indicates that consumers supplement their income with unsecured credit and personal loans, which only adds to their financial burdens.

The impact of interest rate hikes is not limited to the short term, as they reduce ordinary working South Africans' ability to save over the long term. Eighty20 reported that the average middle-class South African spends roughly two-thirds of their salary paying off their debts. This means that individuals are less likely to focus on long-term investments and savings, and may even withdraw from their retirement savings without considering the consequences.

The high cost of living poses an imminent threat to retirement savings, which means that households are in for a 'bad run' if the interest rate hikes continue. Ultimately, the interest rate hike will only exacerbate the already difficult financial situation for South Africans.