Repo Rate Unchanged: expected outcome or missed opportunity?

Repo Rate Unchanged: Expected Outcome or Missed Opportunity?

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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%. While many expected the outcome of an unchanged repo rate, some industry leaders believe that the economy would benefit from a further cut to the record-low rate.

“With South Africa’s inflation rate below the lower limit of the inflation target at 2.9%, and local inflationary expectations remaining well-anchored, it was expected that the Monetary Policy Committee would keep the repo rate unchanged,” says Dr Andrew Golding, Chief Executive of the Pam Golding Property group.

“This means that the prime lending rate remains steady at a near 50-year low of 7% with indications that it is unlikely to dip further, so for potential homeowners, it is a reminder that if you are thinking of buying a home, now would be a good time to secure an attractive interest rate,” suggests Dr Golding.

Read: Buying your first home? Consider these 4 things first

Predictable outcome as interest rates hold steady

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says that this was a predictable outcome and, unless things take an unexcepted turn, he predicts that interest rates are likely to remain steady for the remainder of the year.

“Homeowners and first-time buyers continue to find themselves in a favourable position when it comes to the interest rate on their home loan. While a further cut would have helped the many South Africans who are struggling to make ends meet within the current economy, keeping rates at this historic low will at the very least make it easier for homeowners to keep up with the repayments on their home loan within this challenging economic climate,” says Goslett.

Dr Golding says: “Economists in the main argued that interest rates are currently at the correct level given the prevailing economic environment. From a residential property perspective, last year’s aggressive rate cuts have fuelled home buying to a large degree, with 2020 surprising many by showing robust home-buying activity. In fact, according to FNB, 2020 registered the highest volume of mortgage approvals in South Africa in more than a decade,” adds Golding.

He adds: “South Africa can ill afford to continue cutting already historically low interest rates at a time when investors are anticipating that global interest rates may soon be rising. “However, views on when the SA Reserve Bank will ultimately begin to raise local interest rates are varied, with many suggesting that they will remain unchanged until next year (2022), while some believe rates may possibly begin rising towards the end of this year (2021). One thing we do know is that in unusually uncertain times such as these, forecasting is far from an exact science.

Did SARB miss the mark?

Samuel Seeff, Chairman of the Seeff Property Group believes that the unchanged repo rate spells a missed opportunity to stimulate the economy. “The Reserve Bank has completely missed the mark with their decision to retain the repo rate at 3.5%, says Seeff. “The country and economy desperately need a stimulus and, while probably expected, it is disappointing that the bank has not taken the opportunity to provide some impetus.”

Seeff adds: “There was opportunity for a rate cut during the last two Monetary Policy Committee meetings as evident from the split decisions, especially in January when inflation fell to a 16-year low. Inflation has declined further in February to 2.9%, well below the bank’s target, providing ample motivation for a rate cut.”

“Although the interest rate has been great for property, a cut would provide an added boost. The market is currently achieving around 18,000 to 20,000 monthly transactions, reflecting that only about 3% of economically active individuals are buying property. This leaves room for growth in sales volumes, transfer duty for government and the multiplying knock-on benefits for the economy,” says Seeff.

Carl Coetzee, CEO of BetterBond agrees that a modest cut would have been welcomed, but believes that the steady repo rate still creates massive opportunities for homebuyers. “While a modest cut would have been welcomed, the five consecutive repo rate cuts announced in 2020 certainly provided ample impetus for the surprise turnaround of the housing market, notwithstanding the pandemic and associated economic challenges,” says Coetzee.

Coetzee concludes: “Keeping the repo rate steady during the first quarter of this year means that aspirant home buyers still have an opportunity to make the most of the record-low prime lending rate of 7%.