The decision by the Monetary Policy Committee (MPC) marks South Africa’s seventh consecutive rate hold, leaving the repo and prime lending rates unchanged at 8.25% and 11.75% respectively for 14 consecutive months. However, Rhys Dyer CEO of ooba Group notes that while the decision by the MPC was to be expected, there may be hope on the horizon as local economists speculate around an imminent change in course.
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Dyer says: “It is anticipated that the US Federal Reserve will cut interest rates in September and that this decision, coupled with an easing in local price pressures, will create space for South Africa to follow suit.”
He shares that the revised outlook is due to improvements in two key areas: moderating inflation (petrol and food prices) and an easing in US inflation, vital factors which influence SARB’s decision making.
“Sizeable petrol price decreases in June and July have greatly benefited both consumers and the ongoing mission to curb headline inflation, with inflation levels remaining stable at 5.2% since April 2024. If this easing in price pressures continues, we are well on track to reach the SARB’s target midpoint of 4.5%, suggesting that South Africa’s interest rate cutting cycle could commence as early as September this year,” says Dyer.
South Africa’s new GNU is good news for the rand – and the property industry.
Positive market response
Dyer adds that the stronger rand has also played a role in South Africa’s improved economic recovery, aided by the recently formed Government of National Unity (GNU).
“The formation of GNU followed the ANC’s first loss of the national majority since 1994 during the recent national elections,” comments Dyer.
The markets, heartened by the prospect of improved political stability, have responded positively to this news with the rand dipping below the R18 mark to the dollar for the first time in almost a year at the end of June.
Painting a clear picture of the market’s short-term improvement, Dyer adds that the Johannesburg Stock Exchange All Share Index is currently up just over 8.5% for the year to date.
And while Dyer acknowledges that it is still early days, the GNU symbolises renewed hope for the local economy. “It signifies the prospect of fewer State-Owned Enterprises, greater private sector participation and investment, and fiscal consolidation – the latter a crucial component of a lower interest rate environment.”
Property market recovery on horizon
“Property prices are directly influenced by investor confidence, consumer spending levels and decreased borrowing costs – all factors that are bolstered by a stronger rand,” explains Dyer.
However, growth in year-to-date sales remain muted, emphasising the need for rate cuts to stimulate activity.
“We are hopeful that the boost to investor confidence generated by the formation of a GNU should ensure a more robust economic outlook and create scope for some interest rate relief later this year – underpinning the emerging property market recovery.”
Dyer adds that throughout the elevated interest rate cycle, the banks have increased their support for homebuyers by offering well-priced home loans. “Healthy competition among the country’s major lenders has resulted in further attractive discounts to prime, with ooba Home Loan’s achieving an average weighted concession of -0.56% for Q2 ‘24 – down from -0.41% in Q2 ‘23.”
“The current levels mark the most competitive average rate achieved since 2014 and is proof that the banks are willing to provide additional support to homebuyers while the higher for longer interest rate environment drags on. All things considered, the market is poised for recovery and there is no better time to get a foot on the property ladder,” he concludes.
