At its penultimate meeting for 2023, the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) decided not to increase the repurchase rate from its current level of 8.25 % a year. This leaves the prime rate at 11.75 %.
Three members of the committee voted to keep rates on hold while two preferred an increase of 25 basis points.
In his statement of 21 September, SARB Governor, Lesetja Kganyago, said: “At the current repurchase rate level policy is restrictive, consistent with the inflation outlook and elevated inflation expectations.
“Serious upside risks to the inflation outlook remain. In light of these risks, the committee remains vigilant and stands ready to act should risks begin to materialise. Decisions will continue to be data dependent and sensitive to the balance of risks to the outlook. The inflation and repo rate projections from the updated Quarterly Project Model (QPM) remain a broad policy guide, changing from meeting to meeting in response to new data and risks.”
Industry comment
Dr Andrew Golding, chief executive of the Pam Golding Property group, says the unchanged repo rate provides a welcome boost for home buyers and those with mortgage debt. “The SARB governor continues to signal that the Reserve Bank is ready to hike rates further, if necessary. However, it seems likely that with inflation expected to remain within the inflation target for the rest of 2023 and 2024, the bank has sufficient scope to leave rates unchanged and that the interest rate cycle has therefore peaked.We continue to take a positive view on the residential property market, and we are beginning to see the first encouraging - although modest - signs of an expected upturn in the market, particularly as we head into spring.”
Tony Clarke, managing director of the Rawson Property Group, says the MPC announcement of zero change to the current interest rate has property owners around the country breathing a collective sigh of relief. “This has been an exceptionally tough time for South Africans, and property owners in particular. Pegging interest rates at their current levels may be a more conservative approach than many hoped for, but it’s definitely a step in the right direction for the property market. More significant relief is predicted towards the end of 2024, when interest rates are expected to begin a slow decline. This outcome will depend on local inflation remaining within reasonable bounds, and no further hikes by the US Federal Reserve, but for now, all signs point towards stabilisation with a gentle downward trend starting around this time next year.”
Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says 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. This announcement will also have a positive knock-on effect on the property market. High interest rates have made it challenging for homeowners to keep up with repayments on their home loans. So far this year there has already been a 34% 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.”
Herschel Jawitz, chief executive of Jawitz Property, says that homeowners and buyers will be relieved that the prime rate will remain at 11,75% for now. When rates were increased by a shock 50 basis points earlier in the year, there is no doubt that demand for property slowed noticeably which negatively affected volumes and price growth. We have started to see some green shoots in terms of demand since the MPC meeting in July, where rates were also 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 is down - even if only well into 2024 - and now is the time to buy.”
Yael Geffen, Lew Geffen Sotheby’s International Realty chief executive, shares the country’s relief at the unchanged repo rate, but isn’t quite ready to break out the champagne. “Two MPC members voted for an increase of 25 basis points on top of the Reserve Bank Governor’s consistent caution about South Africa’s economic position, pointing to the inescapable conclusion that we’re not yet out of the woods. It’s likely that before the end of the year we’ll see one further increase which will hopefully be no more than 25 basis points. The MPC meets again at the end of November, which doesn’t bode well for the festive season. This rate reprieve shouldn’t be seen as licence for consumers to spend more. We need to be conservative and think about every cent. Home owners, especially, should save where they can and put any excess cash available into servicing the primary debt on mortgages to bring down monthly repayments.”
Greg Dart, director of High Street Auctions, welcomes the decision to leave the repo rate unchanged. However, he warns that economic recovery won’t happen overnight and that consumers could well see another interest rate hike before the end of the year. Annual consumer price inflation rose to 4.8% in August from 4.7% in July. Although this is within the Reserve Bank’s target range, it is still assessed as a rising risk. Likewise, food price inflation remains high, and fuel and electricity prices are through the roof. My advice to property investors is to double down on due diligence. Know where your money is going, and which sectors are delivering returns. The smart money isn’t in speculation.”