SARB again cuts repo rate, lowers prime lending rate
The Governor of the South African Reserve Bank (SARB), Lesetja Kganyago, has brought an early Christmas present to the country’s real estate market and property owners by lowering the repo rate.
The good news was shared by the SARB’s Monetary Policy Committee (MPC) on 21 November. Interest rates will be lowered by 25 basis points, changing the prime lending rate to 11.25%, with the repo rate dropping to 7.75%, a unanimous decision.
Lesetja Kganyago, in a statement, said since MPC’s previous meeting, the global macroeconomic economy has become more challenging. The value of the dollar has appreciated against most currencies, including the rand. Longer-term interest rates have also risen, not only in the USA, but across the globe. The UK’s economy is in especially precarious position. SA, with its high loan burden, (22c per every R1 just to service the interest on loans), has led to property owners increasingly feeling the financial pinch. Globally, according to Kganyago , short-term rate expectations had moved upwards.
He stressed said that, in general, monetary policies of major economies remain restrictive, but headline inflation has slowed. This created breathing space for major banks to lower interest rates further. However, he warned that with new inflation challenges underlying inflation still remains above target, risking policy reversals.
With Repo Rate Cut SA’s Growth Recovery Still on Track
Kganyago said the country is seeing a continuance in its growth recovery after last year’s, as well as the first half of this year’s weak economic performance. In the near term, a variety of tailwinds, such as lower inflation, higher disposable income and extra spending from pension withdrawals via the new Two-Pot system, are expected to bring positive rewards.
"It is unclear how much this will boost the 2024 third-quarter’s growth numbers, which are due in a few weeks. The data flow has been mixed lately, with some indicators disappointing, while others have been positive. For instance, recent manufacturing data was subdued, but mining was stronger. Encouragingly, the most recent labour force survey showed relatively large and broad-based job gains and lower unemployment,” he said. He is however confident that, over the medium term, sustained improvement in growth is expected to take effect as the result of several reforms. The SARB’s forecast now extends to 2027, with growth expected to reach 2% in that year. Growth predictions are continually assessed to remain balanced with mixed data forecasts.
Growth could be higher from 2025, given ongoing reforms such as structural reforms, especially in electricity and transport industries. Standard & Poor’s recent positive outlook on SA’s credit rating, points to an improving risk premium, suggestive of upside risks over the longer-term.
Repo Rate Cut to Benefit Consumer Prices & Headline Inflation
The country’s consumer prices and headline inflation has, according to Kganyago, dropped below SARB’s target range, 2.8% in October. “Goods prices have slowed more than those for services, which mainly reflect the benefits of a stronger exchange rate and a lower oil price, relative to last year. These temporary supply shocks are likely to keep inflation below 4% until mid-2025.”
Inflation is expected to increase slightly above MPC’s September projection of 4.4% to 4.6% from late 2025, mainly as a result of higher electricity prices. Headline inflation would continue stabilising to near SARB’s objective with inflation expectations to continue improving as opposed to the higher past inflation. “Survey expectations remain above our midpoint objective. It is expected that our policy stance and lower inflation, would anchor expectations firmly at lower levels.
“In the near term, inflation appears well contained. However, the medium-term outlook is highly uncertain, with material upside risks. These include higher prices for food, electricity and water, as well as insurance premiums and wage settlements. Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points, to 7.75%, with effect from 22 November 2024,” Governor SARB
Repo Rate Cut and Property Owner’s Financial Planning:
It is crucial to understand how this would impact property owner’s finances with regards to future financial planning. This is where the expertise of staff at TITAN Property Group (TPG) is invaluable to estimate the positive financial impact on an existing bond.
As the nexus of innovation and expertise in South African real estate, TPG does not just handle real estate transactions but forge personalised solutions to fit a client’s unique needs. Their deep-rooted knowledge of the local market powers two distinct divisions: Commercial and Residential Real Estate.
Contact us today on 076 579 8988 or 010 023 8271 or send an email on https://www.evolate.co.za