Unchanged interest rate welcome news for market to maintain momentum

SEEFF chairman Samuel Seeff has welcomed the decision by the Reserve Bank’s Monetary Policy Committee to retain the repo rate at 5.75 percent resulting in a steady base home loan rate of 9.25 percent.

Although not unexpected in light of the recent announcement that the inflation rate hit a low of 3.9 percent (down from 4.4 percent in January and around 6 percent late last year), the decision is nonetheless welcome in view of the current economic challenges, he says.

“An interest rate hike right now would have been very difficult given that the economy is facing pressure, not least of which is the electricity crisis. Although we are aware that the interest rate is artificially low and t hat an adjustment i s needed in light of the necessity for fiscal consolidation, the current economic state simply does not warrant a hike despite the pressure on the rand.

“Consumers and home owne r s are al ready having t o absorb basic cost hikes including an almost 13 percent increase in the electricity tar- iff, higher petrol costs and higher personal income tax for top earners.

“This has a direct bearing on the demand for housing. Given that we are in the midst of a much-needed growth spurt, we therefore welcome the stability of an unchanged interest rate. The economy is still flat but relatively stable, all of which supports the continued good demand in the market.

“Looking further ahead, we know that an interest rate hike is still a looming possibility and consumers, home owners and buyers need to bear this in mind. Careful budgeting and financial prudence remain vital and will also help keep balance in the housing market in the long term,” says Seeff.

Regional director and chief e x e c u t i ve o f RE/ MAX o f S o u t h e r n Af r i c a Adri a n Goslett says the decision to keep the rates unchanged will be welcome news f or consumers who are dealing with ongoing rolling blackouts and the increasing cost of living.

He says that although consumers enjoyed fuel price cuts during the first three months of this year, the fuel price is once again being increased, placing further financial pressure on cash-strapped households.

“Wi t h t h e f u e l p r i c e increases, inflation is expected to marginally edge higher in the months ahead. However, economists expect that it will still remain within the target band of between 3 percent and 6 percent for a while longer. Despite the fact that oil prices have increased, they are still a lot lower than the average of $115/barrel of last year.

“Even though there was the widely accepted premise that e c o n o mi c g r o wt h woul d s t rengthen and t he South African Reserve Bank would need to increase the interest rate to contain inflation, economic growth remains much slower than desired. In fact, inflation fell to a four-year low of 3.9 percent year-on-year in February from 4.4 percent in January.

“This means that inflation has been within the target band for the past six months. With inflation lowering and the US Federal Reserve now likely to delay its first rate hike, the SARB will likely delay the next interest rate hike as well.”

Goslett says other factors such as the rand weakening to the dollar since the first committee meeting could also prompt the bank to revise its inflation forecast for the year.

Despite warnings from the Reserve Bank that the interest rate was likely to increase during 2015, it is widely agreed upon by economists that the i nterest rates will remain unchanged again at the May meeting, and possibly the July meeting too.

“If this is the case, delays in interest rate hikes will be good news for the local residential property market and those wanting to buy homes,” says Goslett.

“Over the past few years, consumer disposable income has been overtaken by house price growth, which means that housing is slowly becoming less affordable. If inflation remains low and an interest rate hike is delayed, consumers will have more of a chance to close the gap.”