Interest Rates South African Reserve Bank(SARB) Governor Lesetja Kganyago will deliver the March MPC decision later this week.
Image: Thobile Mathonsi/Independent Newspapers
Another interest rate cut this week, together with the lower transfer duties announced in the budget last week, will add further impetus to the market, especially for first-time buyers.
The South African Reserve Bank is expected to announce the March MPC rates decision later this week.
While the Reserve Bank has taken a cautious tone regarding both inflation and future interest rate cuts, the data including inflation, the exchange rate, and oil prices, indicate that there is still an opportunity to cut rates by a further 0.25% this week, says Herschel Jawitz, CEO at Jawitz Properties.
Meanwhile Samuel Seeff, chairman of the Seeff Property Group, believes the Reserve Bank should be bold and cut rates by 0.5%.
Jawitz says inflation is sitting well below the mid-point of the inflation target of 4.5%, the rand has strengthened, and the oil price is sitting close to $70 per barrel. In addition, the inflation numbers indicate very little demand-driven inflation.
He said that even with increased buyer demand, sellers are a long way off from starting to see better prices - meaning the market has still to recover. “
Over the last six months, there has been a noticeable improvement in buyer sentiment and demand across the country, driven by lower interest rates, an improvement in overall sentiment, and the value being offered to buyers in most parts of the country.
"In addition, the bank lending environment remains very positive, with buyers benefiting from bank competition resulting in better rate concessions. Most buyers who are able to put down a deposit are borrowing at less than prime,” Jawitz says. An interest rate cut would add stimulus to this improving market.
Seeff believes the time is now to take advantage of the economic benefits which could flow from a lower interest rate in the current climate.
“The gap between inflation and the interest rate is still too high, and the interest rate needs to be brought down further which would further stimulate and increase activity in the property market, but most importantly, would be a crucial incentive to stimulate economic growth, and with that job creation.”
The prime interest rate at 11% is still a full 100bps higher compared to the pre-Covid rate in January 2020 when it was 10%, and brought down to 9.75% at end of January 2020, and subsequently down to 7%. Comparatively, inflation is now down to 3.2% while it was at around 4.5% in January 2020.
Seeff said the need for a lower interest rate has become an economic imperative and there is a golden opportunity right now. He said while a 25bps cut would certainly be welcomed, it is simply not enough. “A bold cut of at least 50bps is needed,” Seeff said.
He said however the time to be bold with an interest rate cut, and to take advantage of the positives is now. He said it is imperative that the interest rate adjusts to the economic realities. “Even with the current factors and challenges facing the country, Seeff says conditions are favourable for the Reserve Bank to take a bold stance and reduce the interest rate by 50bps this week,” Seeff said.
A big factor, he said, is that inflation has reduced dramatically to around 3.2% in January. He said this is well within, and near the bottom of the Reserve Bank’s target range of 3%-6%. This is also notably down from the 6% average in 2023, and the 4.4% average for 2024 (according to StatsSA), the company said.
The chairman said a further important factor is the decline in the oil price to around USD70 per barrel, down since last year and in fact trending below the expected rate. This will drive inflation down further, or at least keep it contained around the current level, thus adding further incentive to the Bank to make a bold cut, he says.
Additionally, the group said the Rand remains stable, and after weakening slightly, it in fact strengthened over the weekend following the news that the Trump-administration had expelled SA’s ambassador.
On Monday morning, Reezwana Sumad, Nedbank CIB’s research analyst said the final trading session of last week saw the USDZAR trading at 18,3000 at day open.
She said the local unit traded with a marginally firmer bias for much of the session to reach its best levels around 18,1450 by the time of the local close, although it has lost ground since then.
“This morning (Monday), the USDZAR is trading at 18,2100. The EURUSD also traded positively, briefly above 1,0900 on Friday; this morning, it is at 1,0880. The GBPUSD is currently trading at 1,2935, little changed from the previous open. The possible trading range for the USDZAR today is 18,0500-18,4000. The global focus remains on a possible ceasefire deal between Ukraine and Russia; in the local market, focus is on the ongoing diplomatic spat between SA and the US,” Sumad said.
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