The South African Reserve Bank (SARB) has cancelled the Black Friday festivities by delivering a message no consumer wanted to hear, that the cost of borrowing has increased once again.
The SARB’s Monetary Policy Committee (MPC) yesterday decided to increase the repurchase rate (repo rate) further by 75 basis points from 6.25% to 7% per year.
The SARB uses interest rates as a tool to tame rising consumer prices, and with headline inflation printing at 7.6% in October, a rate hike was inevitable.
This means that the level of the repo rate – the rate at which the SARB lends money to commercial banks – is now above the level prevailing before the start of the Covid-19 pandemic in March 2020.
SARB Governor Lesetja Kganyago said that three members of the MPC preferred the announced increase, while two preferred an increase of 50 basis points.
Kganyago said the risks to the inflation outlook were assessed to the upside despite easing of global producer price and food inflation while the oil market was expected to remain tight.
Headline inflation in South Africa breached the upper end of the 3% to 6% target range in the second quarter of this year, and is forecast to remain above it until the second quarter of 2023.
The bank’s forecast of headline inflation for this year and next is slightly higher at 6.7% and 5.4%, respectively, while headline inflation of 4.5% is expected in 2024 and 2025.
“Headline inflation is only expected to sustainably revert to the mid-point of the target range by around the second quarter of 2024,” Kganyago said.
“The revised repurchase rate remains supportive of credit demand in the near term, while raising rates to levels more consistent with the current view of inflation and risks to it.”
EY Africa chief economist Angelika Goliger said the hiking cycle, which commenced a year ago, was not over yet in spite of rates having increased by 275 basis points since then.
Goliger said consumers could still see increases in the repo rate, but these would likely be at a slower pace.
“I am expecting a couple more smaller rate rises, of 50 basis points and 25 basis points, at the first two meetings of 2023,” Goliger said.
“And then hoping we will be at the top of the rate hike cycle – although not expecting rates to come down anytime in 2023.”
The seventh consecutive repo rate hike means that the cost of borrowing by customers from commercial banks will increase, with the prime lending rate rising from 9.75% to 10.5%.
The repayment amount on a R1 million bond over 20 years will now increase by R499 per month – from R9 485 up to R9 984.
Though the property industry agreed with Kganyago that there was still plenty of positivity for the market into next year, it warned that home loans would cost more and the buying market would be a little thinner.
Seeff Property Group chairperson Samuel Seeff said the lower price bands and first-time buyers had been most affected by the rate hikes.
“Generally, it remains a good market for buyers although they will need to factor in higher repayments and potentially higher deposit requirements on home loans,” Seeff said.
“With fewer buyers in the market and the likelihood that they will look for more negotiability, realistic pricing will be a prerequisite to conclude a sale.”
RE/MAX Southern Africa regional director and CEO Adrian Goslett said they had already started seeing the signs that property market activity was shifting.
“Over the last two months, our digital marketing agency has noted a rise in rental-related search terms and a decline in buying search terms, which points to a coming shift in the local housing market,” Goslett said.
The SARB lowered its economic growth forecast again to 1.8%, from 1.9% forecast in September, largely due to record load shedding.
Meanwhile, the rand was changing hands around R17 per US dollar, having dipped to R16.91 earlier in the day, the highest in three months, driven by the SARB’s assessment of risks to the inflationary outlook and risks to the medium-term domestic growth outlook.