At its third meeting of the year, the South African Reserve Bank’s Monetary Policy Committee (MPC) members unanimously decided to increase the repo rate by 50 basis points. This is the tenth time in two years that the repo rate has increased - taking it to 8.25%, and the base home loan rate to 11.75%.
In his speech on 25 May, Lesetja Kganyago, Governor of the South African Reserve Bank, said: “As we approach the mid-point of the year, persistent inflation and elevated financial stability risks continue to mark a somewhat improved global growth outlook. South Africa’s economic conditions, however, remain poor.
“For 2023, the bank’s forecast for GDP growth is slightly higher than in March - at 0.3%. Energy and logistical constraints remain binding on South Africa’s growth outlook, limiting economic activity and increasing costs. We estimate load shedding alone to deduct two percentage points from growth this year.
“Household spending is expected to grow very modestly in real terms, in line with a positive but weak rise in real disposable income. Investment by the private sector remains positive, in part reflecting efforts to overcome constraints in energy and transport supply.”
Industry comment
Samuel Seeff, chairman of the Seeff Property Group, says, "The decision by the Monetary Policy Committee of the SA Reserve Bank to hike the repo rate for the tenth time in just two years by another 50 bps is a huge burden for home buyers - and consumers in general.
"The direct effect on homeowners and buyers is that the cost of borrowing has risen drastically over the last two years. There was adequate reason for the SARB to have taken a more dovish stance in view of the current economic climate. The rate hike is a killjoy for the struggling economy, especially in view of the fallout from the Eskom energy crisis, and the market needs positive news."
Dr Andrew Golding, chief executive of the Pam Golding Property group, says: “With a number of local factors continuing to pose further upside risks to the inflation outlook, there is now less certainty that rates are finally at a peak.
"The weak rand and load shedding are fuelling local costs and limiting the extent to which we could potentially benefit from lower global food and energy prices. The SARB acknowledges that interest rates are not the ideal mechanism for containing inflation, but it is being forced to act alone – raising interest rates in a zero-growth economy in an attempt to prevent rising inflation expectations from becoming entrenched.
“South Africa has weathered far higher interest rates in the past, and when adjusting for inflation, the real prime rate is not as high as it was before the Covid-19 pandemic. Even so, the higher interest rate will undoubtedly be challenging for first-time buyers who capitalised on the low rates during the pandemic to buy homes.”
David Jacobs, regional sales manager for the Rawson Property Group, says: “The extended hike cycle is widely attributed to the Monetary Policy Committee’s ongoing struggle to curb inflation, which remains stubbornly outside of its target range of 3% to 6%.
“South Africans are battling rising costs on every front, from food, fuel to home finance. After the last rates hike, we hoped that we had finally seen the peak of the current interest rate cycle. This latest increase could make monthly bond repayments unaffordable for some homeowners. Those who are a fair way into their loan term may have a little more financial wiggle room. More recent buyers – particularly those who bought at the peak of their affordability during Covid's record-low interest rates – may not be able to manage. Many of these new homeowners may have to reconsider the viability of their investments."
Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says: "This interest rate hike might push many consumers beyond what they can afford. We have already noticed the shift in the property market where we are receiving more enquiries from sellers and less interest from buyers. Every interest rate hike reduces consumer spending power, and affordability levels are under further pressure. A hike like this is likely to cause activity within the property market to tighten even further.”
John Loos, property sector strategist at FNB Commercial Property Finance, says: “This latest interest rate hike on its own has a limited dampening impact on the commercial property market. However, it brings the cumulative interest rate hiking in the current cycle to 475 basis points since late-2021. We believe the full impact of all the interest rate hiking will feed into the market during the course of 2023, slowing demand for commercial property financed by mortgage borrowing.”
Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, says a rate hike was inevitable given the current economic quagmire, but 25 basis points would have been far kinder to consumers.
"We're battling 14-year food inflation highs, our already abysmal employment statistics have dropped further, and real household income is down. Then there is the expected Stage 8 load-shedding, the Russian arms scandal and what US and EU sanctions could do to our country's supply chains and export industries. Since November 2021, homeowners with R2 million bonds have been hit with increased monthly repayments of more than R6 000. This 50-basis points hike will put greater pressure on the property market that’s unlikely to ease for the rest of the year.”
Greg Dart, director at High Street Auctions, says it’s unnerving to have the Reserve Bank Governor refer to even more volatility ahead as he hikes the repo rate by 50 basis points - just one week after the finance minister called the economy ‘dire’.
“The market was expecting a 50 basis points increase, but it’s going to place enormous pressure on consumers and the business sector. The property market is likely to slow for the rest of 2023, but if there is an end to rate hikes in the first quarter of 2024, the market is bound to pick up and will probably gain greater momentum as the year progresses.”
Writer: Sarah-Jane Meyer