South Africa’s prime interest rate dropped to 8.5 percent on Thursday, its lowest level in 40 years. The 0.5 percent drop was announced by Reserve Bank Governor Gill Marcus.
While people with home loans will have more money in their pockets at a time when food and other costs are rising, those with savings will be hit.
While the cut was welcomed by the property industry, it will hurt people with savings and pensioners who are already getting low interest income.
“The effect of the 0.5 percent cut will be positive for the property market and help to keep its mild recovery ticking over,” said Myles Wakefield, the chief executive officer of Wakefields Real Estate.
“The last interest rate cut was in November 2010. This cut is something of an about-turn from talk in 2010/2011 of rising inflation and rising interest rates in 2012.
“A lower interest rate may jolt those still sitting on the fence into buying a property. It will also mean that buyers can afford a little more,” he said.
On a R1 million bond over 20 years the new interest rate will mean a saving of R319; on an R800 000 bond over 20 years the saving is R255 while the saving on a R500 000 bond over the same period is R159.
“Each lowering of the interest rates, although not good for savers, makes debt repayment easier. It will help those who are on the brink of becoming stressed sellers and have been holding on, while lower bond repayments will help others have a little more to use on other household expenses,” said Wakefield.
Adrian Goslett, the CEO of RE/MAX of Southern Africa, said the record low rate, coupled with the higher percentage of bond finance being approved, would continue to stimulate the property market.
“Traditionally the South African property market reacts quite slowly to a rate cut or increase. However, the decrease in the interest rate will definitely spur consumer confidence in the months ahead and will certainly give prospective property buyers something to smile about,” he said,
Cees Bruggemans, FNB’s chief economist, said the cut was a surprise for the market despite predicting a possible cut a month ago.
“The cut comes as domestic economic growth is weak. Every little bit helps and this cut will help boost the economy and consumer confidence, which is a big driver of growth,” he said.
“Very few people predicted that that the Reserve Bank would cut the rate.