The SARB’s Monetary Policy Committee (MPC) is set to increase the repo rate at the January meeting by 50 bps, according to the majority of panelists on Finder.com’s SARB Repo Rate Forecast Report.
January is likely to be the peak of this interest rate cycle, according to 48% of the panel, with an additional 36% believing the rate will peak in March.
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59% think the repo rate will increase by 50 bps in January while 33% are forecasting a 25 bps increase. However nearly one in five panelists (19%), including Morgan Stanley senior economist Andrea Masia, think the rate should hold.
“While risks of a final 50bp hike in the cycle is elevated, we think there is good reason to pause and assess the impact of historical tightening. A stronger FX and lower oil prices create the breathing room to do so,” he said.
Sanlam Investment Management’s head of fixed interest, Mokgatla Madisha, agrees the rate should hold but thinks the SARB will likely raise the rate by 50 bps given central banks are in policy tightening mode.
“...policy acts with a lag and we are yet to see the impact of last year's rate hikes on the economy, furthermore inflation in SA has clearly peaked and with year-end forecasts of inflation close to 5%, the current repo rate of 7% is sufficiently restrictive.”
BNP Paribas chief economist Jeff Schultz disagrees. He thinks the SARB will and should increase the rate by 50 bps at the next decision due to sticky inflation expectations, an arguably more vulnerable currency outlook and the fact that most disinflation is concentrated in fuel prices while core inflation will continue to climb.
“Though the decision is likely to be a close call and split between those advocating for 25bp and those advocating for 50bp, we think that persistently large uncertainties that remain on the domestic inflation outlook will sway the committee to buy itself a bit more insurance and hike 50bp.”
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The majority of the panel (57%) think the rate will increase again in March while 43% believe it will hold.
91% of the panel think South African homeowners will be under increased mortgage stress in 2023 as a result of interest rate hikes.
Jawitz Properties CEO Herschel Jawitz notes that mortgage repayments have increased by 50% from the low of 7%.
“...On a one million rand mortgage, repayments have increased from approximately R7750 per month to R9984, an increase of 29% which is significant. Remember that is also in after tax money so if your earnings haven't increased at the same rate, the financial pressure will build. We would expect to see more distressed sellers putting their homes on the market”.
Just Property CEO Paul Stevens said first-time buyers are at increased risk:
“I think many of the first-time buyers that entered the market after the easing of interest rates had not taken into account potential increases and not just in their home loans but along with this all other living costs that they may not be able to keep up with,” he said.
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Just two panelists (9%), including Nedbank economist Liandra da Silva disagree.
“Although homeowners are under more pressure now than they were in early 2022, they likely faced the worst of interest rate hikes already. The SARB will hike at a softer pace this year, and likely only in the first half of 2023. Furthermore, price pressures are abating, which should offer some support,” she said.
According to the panel we won’t have to wait too long for a hold decision with nearly three quarters (72%) forecasting a hold in May and 94% a hold in July.
The good news for mortgage holders is that the repo rate could actually start decreasing as soon as September, according to 17% of panelists. However they might need to wait until 2024 with 50% of the panel forecasting at least one rate decrease in the first half of the year and 67% in the second half of the year.
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Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty outlook for 2023 is one of cautious optimism along with a caution for consumers to tighten belts against unnecessary spending
More interest rate hikes
Following a record low of 3.75% in May of 2020, the interest rate has been steadily rising, with The South African Reserve Bank raising its benchmark repo rate by another 75 bps to 7% at its November 2022 meeting - the 7th consecutive rate hike since policy normalization started in November 2021,
As the governor of reserve bank, Lesetja Kganyago, recently said, the widely-held belief is that not curbing inflation will be more harmful than hiking the interest rate in the long term, so I think we can certainly expect more increases this year.
And, with the goal being for inflation to be stabilised by Q4 in 2024 at 4.5%, we’re probably in for the long haul which is a bit concerning for the market as higher interest rates mostly impact the sector that has been underpinning the market – property in the R1.m to R2.4m price band.
Bond Originators will play a bigger role in mortgage applications
While banks remain aggressive in lending, the rising interest rate will negatively impact consumers – and especially first-time home buyers – so it’s likely that the services of bond originators such as ooba will be used by more people in order to source the best financing option for their property purchase.
Having access to multiple lenders, an originator is able to provide the homebuyer with the best deal which would include negotiating an attractive interest rate, thereby potentially saving the homebuyer thousands of rand of interest over the term of the bond.
You can view the full report here: https://www.finder.com/za/sarb-repo-rate-forecast.
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