South Africa’s prime lending rate has risen to 11% in 2025, with a real interest rate of 8%, placing significant financial pressure on homeowners and prompting calls for urgent rate cuts to support economic growth.
Economist Dr. Roelof Botha explained on the Kaya Biz podcast that the government’s number one priority should be lowering the cost of capital on credit.
Botha pointed out that at the start of 2020, South Africa’s prime overdraft rate – the benchmark lending rate most people pay on their mortgage loans – was 10%. Inflation was 5%.
Therefore, the real cost of credit, which is the interest rate minus inflation – since most people’s salaries tend to increase more or less with inflation – was 5%.
“Today, in 2025 in South Africa, the prime rate is 11%, and the inflation rate is 3%. So, our real prime rate has increased to 8%. This is the highest in the world,” Botha said.
He noted that during the tenure of former Reserve Bank Governor Gill Marcus, the average real prime rate was just 3.1%, significantly lower than current levels.
“The Monetary Policy Committee of the Reserve Bank, as far as I’m concerned, has lost the plot,” Botha said.
“We need lower rates much further, but there are also additional policies that we can pursue.”
These include cracking down on the country’s logistics crisis committee to broaden, expand and improve harbour efficiency, fixing roads, and rethinking South Africa’s approach to economic diplomacy.
“Don’t pick a fight with the strongest, most influential economy in the world by siding with states like Iran, Cuba, etc,” he said.
Not only are these countries guilty of gross human rights violations, but they also do not have democratic constitutions, Botha pointed out.
Recently, US President Donald Trump posted on his Truth Social Network that his administration would be cutting all funding to South Africa.
All emerging market currencies have weakened due to Trump’s election and the recent tariffs imposed on Mexico and Canada, along with a 10% tariff on goods from China.
However, Trump specifically mentioning South Africa has contributed to a further decline in the value of the rand.
“We need to choose our friends a lot more carefully, as far as I’m concerned,” Botha said.
Botha noted that although recent interest rate cuts have helped, South African households remain under pressure.
The new two-pot retirement system, which was introduced in September 2024, has also given households some monetary relief in recent months.
This system has enabled individuals to better manage their debt while also allowing for discretionary purchases such as furniture and appliances.
The Altron Fintech Household Financial Resilience Index – which tracks 20 different indicators that impact disposable income, adjusted for inflation – revealed the significant impact the two-pot system has had on South African households.
The long-term insurance indicator shot up by a “totally unnatural” 35% as a direct result of the two-pot system, as many people have been withdrawing from their retirement savings.
According to Botha, a sharp increase like this hasn’t been seen since the Marikana crisis.
He cautioned that while this may look good in the short term since people now have a greater disposable income available, they should keep in mind that this will impact how long they need to keep working.
“In the long term, it’s not a very wise decision,” he warned.
Botha again stressed that deeper relief for households needs to come from interest rate cuts.
This index, along with others like the BetterBond index of home loan applications, “shows us that South African households remain under considerable pressure, and it’s really necessary to lower rates further”.
“The interest rate cuts have certainly helped everybody, quite frankly, but it’s not enough. We need a lot more rate reductions to get us on a strong growth path,” Botha said.