SA Reserve Bank cuts repo rate offering relief to consumers

South Africans repaying vehicle, home loans and other debts received some joy on Thursday as the South African Reserve Bank (Sarb) lowered the repurchase rate (repo rate) for the country.

Sarb Governor Lesetja Kganyago announced a cut to the repurchase rate (repo rate) by 25 basis points (BPS).  

This came after the central bank's Monetary Policy Committee (MPC) met this week and voted to decrease the repo rate from  7.50% to 7.25%.

This means that the repo rate will decrease from 7.50% to 7.25% and the prime lending rate will decrease from 11.00% to 10.75%. 

"In the previous MPC statement, we warned of downside risks to our growth forecast. We have now trimmed our GDP projections and currently expect growth of 1.2% this year. The outlook for structural reforms remains positive, but there are also headwinds," Kganyago said.

Property sector reacts

Dr Andrew Golding, the CEO of the Pam Golding Property, said the cut is welcome relief for consumers. 

Golding said, "The MPC seized the opportunity to give South Africa’s economy a much-needed boost in sentiment. Furthermore, with inflation surprising on the downside in recent months and, with a petrol price cut likely next month, although partially offset by the hike in the fuel levy, price pressures are likely to remain subdued. The consumer inflation rate is currently well anchored below the lower limit of the 3%-6% inflation target."

More is needed

Meanwhile, Samuel Seeff, the chairman of the Seeff Property,  said the rate cut was welcomed, but more is needed. 

Seeff said, "This is the fourth rate cut by Sarb since the latter half of last year. The Bank missed a crucial opportunity to provide a more meaningful cut of at least 50bps as a vital boost for the economy, consumers and the property market. The conditions for a robust rate cut are ideal given the remarkably low inflation which, despite the recent benign increase to 2.8% is still comfortably below the SARB's 3-6% target range. Additionally, despite global volatility, the strengthened Rand poses no risk of igniting an inflationary spiral, given the subdued demand-side pressures."

"Even with the latest rate cut, the interest rate is still above pre-Covid levels. This continues to erode any benefits from previous rate adjustments and remains an impediment to real economic growth so vitally needed. The high interest rate has done considerable damage to the economy. Consumers are struggling, and while this rate cut will bring much needed relief," Seeff said.

As a result of the 25bps rate cut, mortgage repayments will reduce by (Based on a 20-year repayment period at the prime rate):

• R750 000 bond – from R7,741 to R7,614 – thus saving R127
• R900 000 bond – from R9,290 to R9,137  – thus saving R153
• R1 000 000 bond – from R10,322 to R10,152  – thus saving R170
• R1 500 000 bond – from R15,483 to R15,228  – thus saving R255
• R2 000 000 bond – from R20,644 to R20,305 – thus saving R339
• R2 500 000 bond – from R25,805 to R25,381  – thus saving R424
• R3 000 000 bond – from R30,966 to R30,457  – thus saving R509
• R5 000 000 bond – from R51,609 to R50,761  – thus saving R848

“With inflation at historic lows and household budgets still under pressure from slow economic growth, any easing in the interest rate environment is a meaningful win for consumers. Lower borrowing costs translate directly into more affordable monthly repayments, which can help unlock greater activity in the property market,” regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett said.

“For buyers, it may be a good time to explore opportunities while rates are still trending lower. For sellers, improved affordability could mean a larger pool of potential buyers, which could mean a quicker sale and more competitive offers,” Goslett added.

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