How SARB's long-term vision for South Africa's economy will impact the property market

The South African Reserve Bank (SARB) must present a long-term vision for the local economy at its MPC announcement on Thursday. 

The country has been stuck in a cycle of short-term reactionary decision-making, says Dr Farai Nyika, an academic programme Leader at the Management College of Southern Africa's School of Public Administration (Mancosa).

“What I mean here is that if we have clarity on what the SARB is trying to achieve over the next five years, then the property market and the broader economy will have more certainty on what their plans are; the confusion caused by the SARB and Treasury saying contradictory things regarding inflation targets is negatively impacting inflation expectations and by extensions local and international investment in the economy,” Nyika says. 

September MPC Decision

The SARB will on Thursday release its Monetary Policy Committee (MPC) statement, following the meeting of the MPC.

At the end of July, the MPC decided to reduce the policy rate by 25 basis points, to 7%, with effect from the beginning of August. The decision was unanimous.

The latest Moody’s Ratings have shown that high credit costs, driven by higher prime lending rates, are a barrier to the country’s economic growth, says Bradd Bendall, the national head of sales at BetterBond. 

He says the MPC said in its statement in July that economic activity for the first quarter of 2025 was looking weak.

“Rising interest rates will place increased financial pressure on households, limit spending and possibly deter investment. It’s possible that too much emphasis is being placed on the proposal to replace the current inflation target range of 3-6% with an anchor target of 3%.

"Increasing the repo rate to accommodate this new target may not be in the best interests of a developing economy that is prone to exchange rate fluctuations.”

Asked how they thought the bank should decide in its meeting on Thursday, Nyika says since the monetary policy has a lag of up to 18 months before changes in rates take full effect, he thinks it would be ok if the SARB kept rates the same, to give the economy time to fully leverage the recent rate cuts.

He says keeping rates the same also gives more time for Treasury and SARB to continue their engagements on the latter’s proposal for a much lower inflation target.

“If the SARB succeeds in its push for a much lower inflation target, then we should not be anticipating rate cuts for the next two years, I think. A rate hike is unlikely to occur as we do not have data that shows sustained rising inflationary pressures over the last few months.”

Nyika says they predict that the property market will continue to be stable and maintain its growth trajectory.

“A rate cut is also possible, particularly if the US Fed cuts its rates by 0.25% as anticipated. A cut would, in the short term, drive property demand in RSA as many have been waiting for the ‘right time’ to enter.” 

The US Fed's interest rates impact

The US Fed’s interest rates announcement is always an important marker on the economic calendar, even when the actual level of the rate of interest is left unchanged (which is, of course, usually the case), says Deon Gouws, the chief investment officer at Credo Capital. 

He says the announcement can move markets around the globe, especially if there’s a surprising element to it.

“This month, a 0.25% cut is widely expected, and if that is indeed the outcome, it probably won’t have too much of an impact on the market (one can argue that it’s probably “in the price”).

"If, however, we see a “dovish” outcome in the form of a possible 0.5% cut, expect to see a very bullish response (risk-on), with sectors such as technology and financials likely to benefit. On the flipside, a “hawkish” announcement (i.e. no cut) could lead to a decline in most of the main indices (risk-off),” says Gouws.

Consumer price inflation

Meanwhile, the annual consumer price inflation eased to 3.3% in August from 3.5% in July. Statistics SA says softer food and fuel inflation took some of the heat off the headline rate.

This softer-than-expected outcome raises the probability of a SARB rate cut at Thursday's meeting closer to around 50%, says Johann Els, the chief economist at Old Mutual Group.

He says that his base case remains for no change, although easing pressures from the rand, oil and food prices could see some MPC members vote for a cut.

“Had the inflation target still been 4.5%, a rate cut would almost certainly have followed. Under the new lower target, however, my view is that rates will be left unchanged-and that would have been my vote as well.” 

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