The SARB's Monetary Policy Committee is set to make their interest rate announcement again on 30 January 2025.
Property market expected to gain momentum as interest rates likely to drop, Herschel Jawitz, CEO – Jawitz Properties
With inflation at the lower end of the Reserve Banks inflation target, South Africans can look forward to a further interest rate cut of .25% this week. This is expected to bring the cumulative decrease in interest rates to .75% since September 2024.
Should this take place, for South African consumers, the impact will be to further reduce the strain on disposable income by reducing the monthly repayments on all forms of debt including home loans, car repayments and credit card debt. Each cut in rates may be marginal but the overall impact starts to add up. On a million rand home loan, the cumulative decrease in payments if rates are cut this week by .25% will be R515.19 per month.
There is no doubt we have seen a shift in sentiment since the elections in May last year with the GNU, the elimination for the most part of loadshedding and lower inflation. The uptick in sentiment has been positive for the residential market with increasing buyer demand especially in areas like Gauteng which has experienced an oversupply and no price growth in recent years. It will take some time before the increase in demand translates into price growth, but further rate cuts will certainly add to the positive momentum in the market.
Reserve Bank must provide 50bps rate cut to counter growth and unemployment risks, says Seeff
The property sector has come out in strong support of a robust and decisive interest rate cut. Samuel Seeff, chairman of the Seeff Property Group says the Reserve Bank must consider a minimum 50bps this week to counter the rising growth and unemployment risks.
The time to be bold is now. We have the highest real interest rate in the world (differential between the interest rate and inflation, according to Dr Roelof Botha), while the economy is limping along and barely growing. Meanwhile unemployment has climbed to an astronomical 32%, higher when other factors are considered.
Seeff says it simply makes no sense for the Bank to persist with an interest rate policy concerned about inflation at between 3% to 6% when, clearly, the most important element for our country must be GDP growth, and with that greater employment.
Another 25bps rate cut is simply not going to provide the urgent growth boost that is needed. While the Bank will likely look to protect the exchange rate, and be concerned that if the US does not drop its rate and we do, people may shift money there, and inflation may go up due to the weaker exchange rate, he says there is a strong counter-argument.
We need GDP growth and unemployment to decrease, and you cannot do it with these high interest rates. Not addressing the growth and unemployment crisis poses a far greater risk to South Africa.
Seeff says further that the Bank has previously stepped in to provide interest rate relief during the Covid-pandemic, and should do so again. The risks are simply far bigger than protecting the exchange rate. The biggest risk right now is not inflation, but low to no growth and rising unemployment.
Cuts will be good for the economy, the country, and property market. He says it will also be good for reinvestment stimulation. If the economy grows, you may very well have the offset between those who are not investing in South Africa or who, because of our weak interest rate return, might be motivated to rather invest in a growing South Africa.
The exchange rate may then, in fact, get stronger again, so it's not guaranteed that an interest rate cut will do damage to the exchange rate. Seeff also expressed concern that there seems to be an appetite to keep the interest rate higher for longer with only two rate cuts of 25pbs each this year. He reiterated that there needs to be at least four cuts of 25bps each, kickstarting with a 50bps cut this week.
We have seen a pickup in momentum in the property market off the back of the two rate cuts late last year, and that momentum needs to continue. It should be encouraged and pushed, and can only be done with a lower interest rate. Now is not the time for a conservative approach in South Africa, the Reserve Bank needs to be bold, Seeff says.
Will the interest rates drop In January?
While many are hopeful for a rate cut, the outcome remains uncertain, according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
“The MPC has consistently taken a cautious approach in each of these meetings. While many had hoped for larger and more timely rate cuts, the outcomes have repeatedly fallen short of expectations".
In their previous statement released in November, Lesetja Kganyago, Governor of the South African Reserve Bank, stated that the “forecast sees rates easing further in future, stabilising a bit above 7%. But this rate path from the Quarterly Projection Model remains a broad policy guide.”
Given that the Reserve Bank sees interest rates dropping to around 7% within the near future, there is reason to be cautiously optimistic about a possible rate cut in January. Inflation is still well within the Reserve Bank’s target range, sitting at 2,9% in November 2024. But, the Rand has also weakened against the dollar and oil prices remain volatile.
While further interest rate cuts cannot be guaranteed, Goslett eases consumers by saying that, “unless circumstances take a dramatic change for the worse, it is not expected that interest rates will increase any further this year. At best, we should see interest rates drop to around 7% over the course of the year, and at worst, interest rates should hopefully just remain unchanged at the current rate of 7.75%,” says Goslett.
“Ultimately, my hope is that we will start to steer away from an overly cautious approach and give the economy a much-needed boost by cutting rates more aggressively over the course of this year,” Goslett says.
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