A welcome decision, and the correct one.
The Monetary Policy Committee (MPC) has voted to keep the repo rate unchanged at 8,25%, and has been praised for giving this welcome reprieve to the economy and property market.
Two members of the committee voted for a 0,25% increase but three voted to keep it stable. The prime lending rate will therefore remain at 11,75%.
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South African Reserve Bank (Sarb) governor Lesetja Kganyago says, however, that the interest rate in South Africa has definitely not peaked. And when this peak will be reached depends on inflation.
Inflation is expected to come back to the mid-point of the target range in 2025, and the Sarb will continue to assess data and risk from one meeting to the next. Policy will then be calibrated based on those risks, he explains.
“So this is not the end of the hiking cycle. It all depends on the data and risks, that is what it boils down to.”
The Reserve Bank’s current inflation trajectory has the rate averaging 6% this year, and then dropping to 5% and 4,5% in 2024 and 2025 respectively.
“That is the trajectory we are working with,” Kganyago says.
Samuel Seeff, chairman of the Seeff Property Group, says today’s decision was the right one considering inflation has been coming down over the past three months. The Rand-Dollar exchange rate has also strengthened.
“Consumers, homeowners, and buyers have had to absorb enough rate hikes now. The interest rate is already too high and has been stymieing economic growth and driving unemployment and higher debt levels. The higher interest rate has done more harm than good. The bank should now be looking at lowering the interest rate.”
Along with electricity and other hikes, he says the burden on consumers, homeowners, and buyers has been simply too high. The higher interest rate has also driven down property sales volumes even in the Cape market, which has been strong.
Considering the fact that household budgets are getting ever-tighter, and that the property market is more subdued than it was at the beginning of the year, Nick Pearson, chief executive of Tyson Properties says it made sense for the Reserve Bank to allow heavily indebted South Africans time to reassess their financial situations going forward.
He adds, though, that while South Africans can celebrate, they also need to be realistic.
“That said, this latest interruption in a steady progression of interest rate hikes is just one of many positives that suggest things are beginning to take a turn for the better.”
Dr Andrew Golding, chief executive of the Pam Golding Property group, says the MPC was “well justified” in holding the repo rate steady.
“This is indeed encouraging news for existing and aspiring mortgage holders. Consumers, especially those with mortgages and other debt, will no doubt be breathing a collective sigh of relief at the announcement, which hopefully heralds a shift towards a stable repo rate and the start of a downward repo rate cycle in 2024.
“The Reserve Bank itself recently conceded that interest rates at current levels are restrictive. Fortunately, however, it appears that inflation has turned a corner.”
Keeping the repo rate steady is particularly motivating for aspiring, first-time homebuyers, who, he says, have a consistent appetite for homeownership. At the same time, banks continue to offer attractive pricing.
The interest rate decision is a welcome relief, says Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, adding that an increase might have been in the cards, especially following the latest employment stats from the USA.
“Usually, when the USA’s employment rates increase, their inflation rates can be expected to increase, which in turn will lead to interest rate hikes. If the USA raises their rates, South Africa usually will too, otherwise our rates become less attractive and investors become more likely to withdraw their funds from the country which would only put further pressure on our economy.
“While the USA has started to get their inflation under control, it is still uncertain whether enough has been done to convince the Fed to ease on interest rates.”
Regardless of what has happened in the USA, Goslett says many people were unsure of what would happen with local interest rates because South Africa had only just hit the MPC’s inflation target range of between 3% and 6% a day before this announcement.
“The fact that the MPC hasn’t raised interest rates at this meeting should afford debt holders more time to adjust to their higher repayment amounts. The one consolation for debt holders is that once our inflation is fully under control, we should hopefully enter into a period of greater stability.”
Franki Robinson, BetterBond marketing manager, says a collective sigh of relief has settled over South Africa.
“For some time now, we have been hopeful of seeing an end to the Reserve Bank’s relentless focus on an inflation target range that many economists believe to be unrealistic....We were pleased to see recent drops in both the Consumer Price and the Producer Price Index, because these factors raise the realistic prospect of an end to this current rate-hiking cycle.”
BetterBond’s advice to homeowners who have been able to maintain their monthly bond repayments, is to try and keep those repayments unchanged now, because this means significant savings on interest and shaving years off the term of your home loan.
“Homeowners who are struggling to afford their monthly repayments, must talk to their banks immediately. The banks are not out to repossess your home – they are there to help you hang onto your biggest asset and regain financial equilibrium.”