The South African Reserve Bank Monetary Policy Committee (MPC) decided to keep the repurchase rate unchanged at 5.5 percent per annum.
Reserve Bank Governor Gill Marcus says the MPC will continue to monitor events closely and assess the risks to the inflation outlook on an ongoing basis and stands ready to act in either direction should it be deemed appropriate.
Reserve Bank Governor Gill Marcus says the MPC will continue to monitor events closely and assess the risks to the inflation outlook on an ongoing basis and stands ready to act in either direction should it be deemed appropriate.
Marcus notes that inflation is expected to average 6.0 percent in the second quarter of 2012 and thereafter to follow a gradually declining trend within the target range.
She explains that in the volatile and uncertain economic environment the MPC believes it is appropriate to maintain the current accommodative monetary policy stance, given the continued absence of clear signs of excess demand pressures.
The MPC decision was widely expected by many. Read the article here.
FNB household sector and property strategist John Loos says the current interest rate levels strike a ‘nice balance’ from a household sector point of view.
He says this will provide major relief for the financially stressed (down from 2008’s 15.5 percent prime rate) but is simultaneously sufficiently tight so as to encourage further much-needed reduction in the household debt-to-disposable income ratio.
Loos notes that the Reserve Bank lowered its inflation forecast slightly from the previous MPC meeting and after an expected 6 percent average CPI inflation rates for the second quarter, the bank expects the rate to return to the 3 to 6 percent target range.
Loos points out that the low interest rates will see slow house price growth towards the winter months after something of a mini-surge in the summer on the back of some good recent quarters of economic growth.
Despite apparent increased uncertainty, FirstRand expectation is for interest rates to remain unchanged until the second half of next year, where-after they are expected to rise, he says.
What this means for the household sector:
1. Continuation in the declining trend in the household sector debt-to-disposable income ratio in the near term.
2. Further slowing in real retail sales growth. From 8.7 percent in Q4 2011, real retail sales growth declined to 5.9 percent year-on-year (y/y) in Q1 2012.
3. From 4.9 percent y/y, real household disposable income growth is also expected to slow down to rates more in line with real economic growth around 3 percent.
Loos explains that the long period of flat interest rates and the lack of stimulus that it represents, is most relevant to the more credit-driven durable consumer goods component and semi durables.
These are expected to see more of a growth slowdown in the near term than the less interest rate sensitive non-durables and services consumption categories.
Both durables and semi-durables still had very high real annualised growth rates of 15.7 percent and 7 percent respectively in the final quarter of 2011, and are expected to slow more into line with the slower growth rates of services (3.8 percent) and non-durable consumption (2.9 percent).
Bruce Swain, managing director of Leapfrog Property Group says many buyers are still battling to obtain home loans and leaving the repo rate unchanged will assist some buyers both in terms of affordability and mortgage finance approvals.
4. Slowing house price growth towards the winter months after something of a mini-surge in the summer on the back of some good recent quarters of economic growth.
Estate agents have their say
Bruce Swain, managing director of Leapfrog Property Group says although the property market has improved in recent months, affordability remains key in the housing market.
Many buyers are still battling to obtain home loans and leaving the repo rate unchanged will assist some buyers both in terms of affordability and mortgage finance approvals, he says.
Dr Andrew Golding, chief executive officer of the Pam Golding Property (PGP) group says the cost of living continues to rise and as affordability remains a pressing issue facing aspirant and existing home owners, it is hoped that the repo rate will remain at its current low levels for the foreseeable future.
Golding points out that a further reduction in the interest rate would provide a boost for consumer confidence generally.
He notes that buyers currently active in the market are buying homes priced between R1.5 million and R3 million with many young buyers, first-time buyers wanting to gain a foothold in the market.
Adrian Goslett, chief executive officer of RE/MAX of Southern Africa reveals that they have seen high growth of property sales in central Gauteng but this could be affected later in the year with the introduction of the new e-toll system.
Golding says many of these buyers still cannot access finance.
For those buyers with cash or qualify for home loans, buyers look for properties located close to schools, places of work and amenities and security while more affluent buyers strive to achieve homes which offer a better, more desirable quality lifestyle or sense of community.
PGP is also seeing a gradual increase in enquiries for leisure properties or second homes as well as agricultural farms, says Golding.
Adrian Goslett, chief executive officer of RE/MAX of Southern Africa expects that the repo rate will remain unchanged at least until the end of the year.
Goslett says low interest rates will continue to boost buyer confidence in the market.
He reveals that RE/MAX has seen high growth of property sales in central Gauteng but this could be affected later in the year with the introduction of the new e-toll system.
“Although the toll collection is currently under review, its implementation coupled with the rising cost of living could negatively impact buyers and force them to hold out on purchasing property.”
Low interest rates have contributed to consumers reducing their debt and more buyers scoring home loans, he adds. –Denise Mhlanga
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