At its July meeting, the South African Reserve Bank’s Monetary Policy Committee (MPC) announced that the repo rate would remain stable at 8.25%, leaving the prime lending rate at 11.75%. Three committee members preferred to keep rates on hold, and two preferred an increase of 25 basis points.
In his announcement, SARB Governor, Lesetja Kganyago, said: “At the current repurchase rate level, policy is restrictive, consistent with elevated inflation expectations and the inflation outlook. Serious upside risks to the inflation outlook remain. In light of these risks, the committee remains vigilant, and decisions will continue to be data dependent and sensitive to the balance of risks to the outlook.
“The policy stance aims to anchor inflation expectations more firmly around the target band's mid-point and increase confidence in sustaining the inflation target over time.
"Guiding inflation back towards the target band's mid-point reduces the high inflation's economic costs and will achieve lower interest rates in the future. Since early 2020, the committee has recommended additional and indirect means of lowering inflation within the reach of the public sector, including achieving a prudent public debt level, increasing the energy supply, moderating administered price inflation and keeping wage growth in line with productivity gains.
“Such steps would strengthen monetary policy effectiveness and its transmission to the broader economy.”
Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says that an increase might have been on the cards, especially following the latest employment statistics from the USA announced earlier this month, creating shockwaves in local stock markets.
“Usually, when the US’s employment rates increase, their inflation rates can be expected to increase, which in turn will lead to interest rate hikes. If the US increases rates, South Africa usually will, too; otherwise, our rates become less attractive, and investors become more likely to withdraw their funds from the country, putting further pressure on our economy.
“The fact that the MPC hasn’t increased the repo rate at this meeting will give debt holders time to adjust to their higher repayment amounts. Once inflation is fully under control, we should hopefully enter into a period of greater stability. Homeowners can take some solace in this because it indicates that, barring external factors, interest rate hikes are far less likely to occur in the near future.”
Samuel Seeff, chairman of the Seeff Property Group, says the MPC’s decision to keep the repo rate unchanged at 8.25% is a welcome reprieve for the economy and the property market.
“It was the correct decision given that inflation has, against expectation, been coming down rapidly over the last three months to 5.4% in June and is now within the SARB’s 3% to 6% target range. The rand-dollar rate has also strengthened.
“Consumers, homeowners and buyers have had to absorb enough rate hikes. The interest rate is already too high, confounding 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.
“The market is now challenging for sellers and first-time buyers. The upside, though, is that we are now undoubtedly in a buyer's market. Sellers will now have to focus on pricing accurately to attract buyers.”
Dr Andrew Golding, chief executive of Pam Golding Property group, says the stable repo rate is 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 SARB 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 home buyers, whose appetite for home ownership remains consistent, while the banks continue to offer attractive pricing, with the first-time buyer mortgage approval rate ticking higher to 81.2% in June - according to ooba’s statistics. The demand for buy-to-let investment properties also continues to surge, rising to +10.9% of all ooba mortgage applications in June, which is a positive indicator for the housing and rental markets. In addition, ooba reports that the average weighted rate of concession below prime improved marginally in June, easing to -0.42%.
“Just before the MPC’s announcement, many analysts made a compelling case that the MPC had done enough to contain price pressures. Demand is weak, making it hard to pass on additional costs, and rates have already been hiked by 475 bps to the highest levels in 15 years – all this at a time of subdued levels of economic activity. Considering the fact that the prime rate has risen from 7% to 11.75%, the economy and those with debt are under pressure.
"With sentiment a key driver of the residential property market, a stable interest rate is needed to boost confidence and activity further.”
Herschel Jawitz, chief executive of Jawitz Properties, says that South African consumers were waiting with bated breath to see what the SARB would decide about interest rates during the MPC meeting.
“Despite some encouraging inflation data in May, especially with regards to food prices, there was still a real possibility that the SARB would continue with its rate-hiking cycle. Interest rates have come off a historic low of 7% in July 2020, rising by 4,75% to the current 11,75% in the steepest phase of monetary tightening since 2006. This aligns with international trends, where rates have increased by similar amounts. However, higher interest rates have been a bitter pill to swallow for consumers, especially homeowners who have home loans to repay. Notwithstanding the increased pressure on consumers, the Reserve Bank needed to bring inflation back into its target range of 3% to 6%.
“Given the many challenges South Africa faces at the moment, consistency in policy implementation from the SARB is critical from an international investment perspective. The residential market was holding up reasonably well until the last rate increase of 50 basis points in March this year. Since then, we have started seeing more stress in the market from homeowners and a drop in demand, especially from first-time buyers, who opt to rent at current interest rates.”
Leonard Kondowe, finance manager for Rawson Finance, says South Africa is in a volatile economic situation, and interest rates could keep climbing for some time to come.
“This means it's essential to think ahead in terms of affordability. While today’s interest rates may seem dire by recent standards, it’s important to maintain a little perspective. In 1985, interest rates hit a high of 25%, and almost as high again in 1998 to around 24.50%. Today’s rate pales in comparison.
“The real challenge isn’t how high the interest rate is, but how quickly it’s reached this stage. In the past three years, finance costs have soared in South Africa, with the prime lending rate rising by 4.75% since July 2020. This has significantly impacted consumer affordability, dramatically reducing the pool of qualified applicants in the home loan market.
“We’re definitely not seeing big concessions like prime minus 1.5% on a regular basis as was the case before. Anything below prime can be considered a good deal, with most offers falling between prime and prime minus 0.45%. Bonds of 100% to 105% are still available, but these inevitably come with less favourable interest rates. Prospective buyers should save for a deposit to secure the lowest possible interest rates and minimise their monthly repayments.”
Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, has hailed the unchanged repo rate as welcome relief for consumers and a boost for the property industry in South Africa.
"Ten successive rate hikes have hurt the market, and it shows, particularly in the drop in first-time home buyers – those under 35.
“Lightstone data released in June showed that transfers of properties to buyers below the age of 35 over the past ten years have declined from 87 675 (45%) in 2012 to 81 519 (40%) in 2017 and 69 304 (38%) in 2022.
“This is the population segment of investors that should be growing – our homeowners of the future. When young buyers can’t afford to get a foot on the property ladder, it shows an economy that’s in trouble.”
Geffen says while the unchanged prime lending rate announcement is extremely good news, the country is far from out of the woods.
“We need the government and the SARB to work harder to affect a real and lasting economic turn-around. Food price inflation is still too high, the cost of electricity is huge, and grid instability is a grave threat to the country as a whole.
“This announcement is a good starting point, but we need prime lending rate stability for the rest of the year, at least, and for the other currently dysfunctional moving parts to be fixed.”
High Street Auctions Director Greg Dart says the unchanged repo rate is the best news South African consumers and the property industry have received in over 18 months.
“An 11th successive rates hike would have been a step too far for South African consumers already battling extremely high food prices and an electricity price increase at the beginning of the month that put substantial pressure on already tight household expenditure.
"In an interview earlier this week, Finance Minister Enoch Godongwana said the SARB would base its prime lending rate decision today on what was necessary to curb inflation. Thankfully, the latest figures from Stats SA were good.
“The ideal is to find a balance between curbing inflation and not squeezing the life out of the population with untenably high interest rates.
"Today's announcement was a positive step in the right direction, but only a first step. Mortgage holders need time to recover from the economic backslide they’ve faced since the upward rates cycle started in 2021, which means we need to see the prime lending rate remain stable for the rest of the year.”
Writer: Sarah-Jane Meyer