Consumers are able to enjoy the current interest rate for a while longer, as Reserve Bank Governor, Gill Marcus, announced today at the third Monetary Policy Committee meeting of the year that the prime interest rate would remain at its current 9%. The repurchase rate will remain at 5.5%. While this will come as a relief to consumers, economists are still expecting the rate to be hiked throughout the remainder of 2014, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
“Unfortunately with the weakness in the currency and inflation pressure, the Reserve Bank will have little choice but to raise the interest rates in the near future,” says Goslett. “The Reserve Bank Governor has made it clear that consumers should expect to see rate hikes in possible varying increments during the remainder of the year.”
He notes that it is likely that these future rate hikes will have an effect on the property market to a degree, considering that most aspirant homeowners will require finance to purchase a property. “The increased cost of credit could hold some buyers back a while longer, however there is a strong indication in the market that consumers are confident in the property market and are eager to get their foot in the door. Currently property sales are still performing well with demand outstripping supply in many regions throughout the country, proving that South Africans still value homeownership.”
Even though house prices are only seeing marginal gains this year, Goslett says that even a small value increase points to a more stabilised environment than we were experiencing a few years ago. “Property price growth is important for those who currently own property; however property remaining within an affordable range is equally important for potential first-time buyers.”
According to Goslett current interest rates are still highly favourable for buyers and will only make a noticeable impact on the market if they are raised significantly. He notes that affordability levels are of greater concern for the future of the property market. “While future rate hikes are likely to place more pressure on buyers, reducing debt levels will increase the applicant’s chances of bond approval and make affording a home far easier.”
“The committee [Monetary Policy Committee] decided to keep the repurchase rate unchanged at 5.5% annum at this stage. Future actions will be data dependant and determined by developments in the inflation outlook and inflation expectation,” said Governor Gill Marcus.
Analysts had expected the repo rate to remain unchanged.
However, the committee continued to hold the view that it is a rising interest rate cycle.
“The committee continues to hold the view that we are in a rising interest rate cycle, and interest rates will have to be normalised in due course,” she said.
The bank hiked interest rates at its first meeting of the year in January. At the time the repo rate – which is the scale at which the bank lends money to commercial banks – had up until January 2014 left the repo rate unchanged at 5% since July 2012.
“At this stage the pace and timing of normalisation in the advanced economies appears to have been pushed out further and may be more moderate than previously believed. We are also aware that this can change very quickly,” she added.
The decision to keep rates unchanged was not a unanimous one, added the governor.
Data from Statistics South Africa (Stats SA) yesterday showed that the Consumer Price Index (CPI) breached the central bank’s 3 to 6% inflation target range coming in at 6.1%.
“The MPC continues to face the difficult dilemma of dealing with upside risks to inflation and a deteriorating domestic economic growth outlook. Although the breach of the upper end of the inflation target band was in line with the Bank’s forecast, the risks to the forecast remain on the upside,” noted the committee.
This dilemma is increased by the fact that inflation is seen to be driven primarily by supply side factors while demand in the economy remains subdued.
Additionally food prices, said the governor, remain a risk to the inflation outlook.
The growth forecast for 2014 has also been revised downwards to 2.1% and the first quarter growth outcome is anticipated to be the lowest quarterly growth rate since 2009’s recession.
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