By Angelique Ruzicka, editor, Justmoney.co.za
The South African Reserve Bank is keeping the repo rate on hold but further hikes could be on the cards this year.
South African Reserve Bank Governor, Gill Marcus has announced that the Monetary Policy Committee has agreed to keep the repo rate at 5.5%, which means that prime lending rates will remain at 9%.
But Marcus warned: “Inflation is currently at uncomfortable 13 levels and a marked deterioration in the outlook may require action that we will not hesitate to take. The MPC reiterates that a rising interest rate cycle does not mean that rates will be raised at each meeting, or by the same amount each time.”
Marcus acknowledged that the decision was not a unanimous one with five members wanting to hold rates and only two wanting to raise them. She refused to divulge what advice she’d be imparting to the new Finance Minister of South Africa, but said that once the candidate had been revealed on Sunday that the bank would interact with the Minister.
Good news for borrowers
Commenting on the decision to keep rates on hold Adrian Goslett, CEO of RE/MAX of Southern Africa said that while this will come as a relief to consumers, economists are still expecting the rate to be hiked throughout the remainder of 2014.
“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,” he said. “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.”
Goslett said this increase could have an impact on the housing market, 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.”