A pause in repo rate hiking cycle was hoped for

Dr Andrew Golding, chief executive of the Pam Golding Property group

With consumers under increasing pressure from the rising cost of living and a series of interest rate hikes since late 2021, it was hoped that the MPC would keep the repo rate stable today in order to help support economic activity, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

“A pause in the upward cycle would have allowed some breathing space and stimulated positive market sentiment. A key for the economy in general and the property market in particular is the state of household finances, which are currently under pressure as a result of the recent resurgence in the cost of living and series of hikes which have taken interest rates to above pre-Covid levels.

“While higher-than-anticipated inflation (7% Feb 2023) was a contributory factor, this ninth increase today, of 50bps, which takes the repo rate to 7.75% and the prime interest rate to 11.25%, is a bitter pill for households and businesses with mortgages and credit finance – especially SMME’s – all of whom are already dealing with the significant economic impact of ongoing loadshedding.

“The SA economy is under significant pressure – with the power crisis undermining economic activity while simultaneously fuelling inflationary pressures by compelling those who can afford it to invest in back-up power. Not only does this dent household incomes and business revenues, it is also fuelling price pressures in food production and transport, with the food inflation rate reaching a 14-year high in February 2023.

“The recent easing of power outages – if sustained – will go some way towards improving the situation, both in terms of easing price pressures but also boosting economic activity and bolstering consumer and business confidence levels.

“The next question is whether or not this latest increase will represent the peak of the current interest rate cycle. Although it is particularly difficult to predict at present, on balance it is hoped that we have reached the peak of the current cycle, with the weakening in the economy likely to limit the Reserve Bank’s appetite for further interest rate hikes, at least for a while. This would then allow the full effects of the interest rate hikes already implemented to take effect.

“However, against the backdrop of a global economy still normalising from the effects of the pandemic and the outbreak of the first major war in Europe since WW2, which has impacted the rest of the globe due to globalisation of energy and food markets, as well as the recent turmoil in the global banking sector, some analysts feel there may be yet another interest rate hike before it stabilises.”

Concludes Dr Golding: “That being said, a number of key factors have ensured that, while slowing in the face of a variety of economic headwinds, activity in the housing market has remained surprisingly resilient due to the banks’ ongoing appetite to extend mortgages to home buyers, including first-time purchasers, coupled with the relocation of homeowners from the interior to the coastal provinces – the Western Cape in particular. In addition, homes nationally change hands on a daily basis among those relocating, upsizing and downsizing for a variety of the usual reasons according to lifestyle and life stage changes – all of which has resulted in sustained activity in the residential property market.”

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Posted by The Know - Pam Golding Properties