It is not a decision that would have taken many by surprise, but hearing officially that the SA Reserve Bank’s Monetary Policy Committee decided to keep the repo rate stable at 8.25 percent is a welcome relief for South Africans.
This means that the interest rate remains at 11.75 percent.
With fuel prices going up this month – and predicted to increase again in October, plus the fact that inflation increased slightly in August, there was always the slight chance that the rate could have been hiked, even by just 0.25 percent. So the fact that this did not occur has been welcomed by most.
Economists and financial experts have said this week that despite inflation and fuel prices increasing, overall inflation was still within the Reserve Bank’s target range, so there was no reason for the rate to be hiked.
There is also still hope that rate cuts will come in 2024, but nothing is ever guaranteed, as Reserve Bank Governor Lesetja Kganyago alluded to this afternoon.
“The arrival of one swallow does not mean Summer is here; we need to see more swallows to see that.”
Annual headline inflation was 4,7 percent in July and increased slightly to 4,8 percent in August.
“And we already expect that September might be higher. We need to take it as it comes,” he says.
Mmusi Maimane’s Build One South Africa (BOSA), however, feels that the repo rate should have been cut today in order to provide some respite to struggling households, and also because inflation has “largely stabilised”.
Given the fact that fuel prices are set to drastically increase in the coming weeks, and that VAT is likely to be increased by one to two percent, spokesman Roger Solomons says this “conservative approach” by the Reserve Bank was a “missed opportunity to lessen the burden of South Africa’s exorbitant cost of living and high levels of personal and household debt”.
“South Africans are using 65 percent of their net income to service debt, 76 percent of South Africans regularly run out of money before the end of the month, and more than half run out halfway through the month. Across all classes, citizens are being pressed from all sides as the economy struggles to grow, unemployment increases, and the cost of borrowing remains high.”
Although a rate cut would have been appreciated by homeowners, keeping it steady has come as a relief. Dr Andrew Golding, chief executive of the Pam Golding Property group, says the decision provides a “welcome boost” for homebuyers and those with mortgage debt.
During November 2021 and May 2023, the repo rate was increased by 4.75 percent, but the consumer inflation rate has declined from a peak of 7.8 percent in July 2022 to 4.7 percent in July 2023 – marginally above the mid-point of the inflation target. And although inching slightly higher in August to 4.8 percent, it remains well within the inflation target range of three to six percent.
“With a recent Reuters poll revealing that 29 of the 30 economists surveyed predicted no change to interest rates this week, the poll also disclosed that the same economists are forecasting 75 basis points of cuts during the course of next year (2024), which would take the prime rate back to 11 percent by year-end.”
It is widely acknowledged, however, that there are challenges to the inflation outlook, from a higher oil price, weaker rand, and the prospect of rebounding food prices – as a result of the El Niño effect and rising temperatures across the globe. And, of course, load shedding remains a threat to local price pressures.
“Given the ongoing upside risks to the inflation outlook, the Bank may well not hike rates further but rather err on the side of caution by keeping interest rates higher for longer – in other words, cut interest rates later than some economists are expecting.”
Golding adds: “We continue to take a positive view on the residential property market, and we are beginning to see the first encouraging, albeit modest, signs of an expected upturn in the market, particularly as we head into spring.”
The decision to keep interest rates stable is a “reassuring outcome that should go a long way towards instilling investor confidence in an improved economic outlook for the country”, says regional director and chief executive of RE/MAX of Southern Africa, Adrian Goslett.
This announcement will also have a positive knock-on effect on the South African property market.
“High interest rates have made it challenging for homeowners to keep up with the repayments on their home loans. Year-to-date, we have already seen a 34 percent increase in the number of mandates received from the banks’ distressed property divisions. By keeping interest rates stable, the MPC has at least provided homeowners some time to recover from the string of interest rate hikes we’ve experienced over the last year,” he says.
Tyson Properties’ chairman, Chris Tyson, and chief executive, Nick Pearson, have also welcomed today’s decision. Although this means that the prime lending rate remains at a 14-year high of 8.25 percent, the decision not to further increase the repo rate will provide more stability for South Africa’s property market and give the country’s consumers some respite from the increasing cost of financing important assets like properties.
“Whilst it cannot be denied that South Africans still have to contend with a high cost of living, rising fuel prices, and increased load shedding over the months of September and October, this latest decision by the Reserve Bank is definitely a move in the right direction. I foresee the rate being held now for the remainder of the year with, perhaps, even a slight drop in the new year,” Tyson says.
While rates are on hold, the same can’t be said for petrol prices, so Herschel Jawitz chief executive of Jawitz Properties says it a case of ‘two steps forward on rates and one step backwards on petrol price and disposable income’.
When rates were increased by the shock of half a percent earlier in the year, demand for property slowed noticeably which impacted on both volumes and prices growth. However, some green shoots have been seen in terms of demand since the last MPC meeting where rates were kept on hold.
“Buyer activity has definitely started to increase across all price levels over the last two months where we typically see some fall off in the winter months. Buyers may sense that the next step on rates, even if only well into 2024, is down and now is the time to buy,” he says, adding that bank lending remains favourable.
While Rhys Dyer, chief executive of ooba Home Loans welcomes the news of another interest rate hold, he feels that attention should now be focused to rate cuts to ease pressure on household finances and further motivate prospective homebuyers in a sluggish economy.
“Positive conditions such as inflation reaching a two-year low in July at 4.7 percent should certainly be factored in at this point.” At present, during what is hopefully the top of the rate hike cycle in the short-term, “consumers are still struggling to keep up with their repayments and the amplified cost of living.”
Economists and financial experts from the likes of PwC and Nedbank are predicting rate cuts early in the new calendar year.
“For the remainder of this year, we do anticipate that the higher oil prices may impact the inflation rate higher once again, however, we do firmly believe that the tentative easing of interest rates next year is necessary to bring much needed relief to consumers are will certainly help kick-start the homebuying cycle,” Dyer says.
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