Interest rate reprieve for SA
It was announced today at the last Monetary Policy Committee (MPC) meeting of the year that the interest rate would remain unchanged as we move into 2017. The repo rate will stay at 7%, with the prime lending rate currently at 10.5%.
A slow economy and the need for expanded money supply has led to the Reserve Bank pausing their hiking cycle for the time being, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. “While consumers are not in the clear quite yet, it seems that there are indications that the hiking cycle has run its course and is coming to an end in the near future. If this is the case, it will be good news for bonded homeowners and prospective buyers who are eager to purchase a property next year,” says Goslett.
Since January 2014 up until March this year, rates have increased by a cumulative 200 basis points, which has added to the financial pressure that has been placed on consumers. While a 200 basis point increase is relatively conservative when compared to the previous hiking cycle where rates went up 400 basis points, it comes amid electricity tariff hikes, petrol price increases and drought-induced escalating food prices.
“For the majority of 2016, interest rates have remained steady due to weak economic growth, the strengthening of the currency and an improved inflation outlook. However, there is still the chance that at least one more hike could be on the cards in the future, so consumers need to financially prepare where possible,” advises Goslett. “It is likely that the Federal Reserve will hike the US interest rate in December. If this occurs along with a negative assessment from rating agencies, the currency will once again suffer, placing pressure on the MPC to hike interest rates during the first quarter of 2017.”
According to Goslett, consumers should take this interest rate pause as an opportunity to reassess their financial situation before the start of the New Year and cut the fat where possible. He adds that currently, households spend approximately 76% servicing debt. “Even if there are no further rate hikes in the immediate future, poor economic growth, price pressure and job losses will continue to impact on the property market and more importantly consumer’s back pockets. Reducing debt levels and increasing savings will lift consumer confidence as we welcome in another year,” Goslett concludes.
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