Local banks thrive on high interest rates, but the burden falls on the poor, highlighting the urgent need for reform in monetary policy.
South Africa n banks remain significant beneficiaries of high interest rates, even as the South Africa n Reserve Bank on Thursday opted for a modest 25 basis point cut to the repo rate, says the author. Image: SAReserveBank YouTube South Africa n banks remain significant beneficiaries of high interest rates, even as the South Africa n Reserve Bank on Thursday opted for a modest 25 basis point cut to the repo rate, bringing it down from 8.0% to 7.75%.
Despite economic stagnation and high unemployment, South African banks have consistently posted strong profits, buoyed by these wide interest rate spreads. This profitability contrasts sharply with the challenges faced by the broader economy, where growth remains sluggish and households struggle to make ends meet.For low-income households, the modest repo rate cut provides little tangible benefit.
Policymakers and regulators must push for a financial system that balances profitability with accessibility. Introducing caps on lending rates, incentivising affordable credit for low-income earners, and promoting loans to small and medium-sized enterprises could help bridge the gap. These steps would not only alleviate the financial burden on the poor but also stimulate economic activity and job creation.
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