Missed Opportunity with Unchanged Repo Rate

The Monetary Policy Committee (MPC) has again announced that interest rates will remain stable, keeping the repo rate at 3.5% and the prime lending rate at 7%.

According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, house price appreciation and rental escalations have remained subdued for some time now; enough that an interest rate cut at this meeting could have helped stimulate further growth within the local property market.

“Although the property market is very much active at this time, many buyers and sellers are struggling to make ends meet within the current economy, which puts downward pressure on asking prices. An interest rate cut could have helped alleviate some of this financial pressure, allowing room for property prices to strengthen,” explains Goslett.

The decision by the SARB to retain the repo rate is disappointing for the economy and property market, says Samuel Seeff, chairman of the Seeff Property Group. “There is ample reason for a cut given the split decision and missed opportunity in November. Since then, the Rand has strengthened and inflation dipped to 3.1%, the lowest in 16 years. Although expected to rise, analysts believe it will remain below the midpoint of 4.5% providing enough reason for a rate cut,”says Seeff.

 

Minimising economic fallout-out from Covid-19

“We have seen what last year’s rate cuts did for the economy and property market with better than expected results during the second half of 2020,” says Seeff. While the property market is poised to continue its buoyancy, we now again find ourselves with tighter lockdown restrictions amid a second wave resurgence of the Covid Pandemic.

 Seeff adds: “Ultimately, government needs to get on with a vaccination programme with some urgency to limit the economic fall-out from the lockdown. The longer it lingers, the higher the risk of rising inflation and distressed properties which could lead to tighter bank lending criteria and higher deposit requirements. This would inevitably impact on activity in the low and mid-price ranges.”

Will the repo rate be cut again?

Dr Andrew Golding, CEO of Pam Golding group says: “We believe that while the MPC erred on the side of caution in holding the repo rates steady, that there is certainly a compelling case for a further reduction, which would provide some relief to financially distressed households and businesses.

Golding adds: “Rather than cutting interest rates further, the Reserve Bank may opt instead to keep rates lower for longer, which would be facilitated by inflation remaining below the mid-point of the Reserve Bank’s 3%-6% inflation target.”

 

Goslett concludes: “While it is possible that interest rates may drop further during the course of the year in response to the ever-evolving circumstances surrounding the pandemic, it is always advisable for homeowners to make provision for the possibility of a minor increase, as this will directly affect the repayments on their home loan.”

 

*Image: SARB, via Flickr