Lesetja Kganyago, governer of the SA Reserve Bank, announced at the Monetary Policy Committee (MPC) meeting that interest rates would remain unchanged, with the repo rate at 6.75%. Following that, FNB confirmed that the prime lending rate would continue at 10.25% and their decision readdressed at the MPC in January 2018. The SARB also predict that the inflation rate will remain within the target range.
The repurchase rate, otherwise known as the repo rate, is the official interest rate that the South African Reserve Bank (SARB) charges commercial banks in the private sector to loan money to them. The banks then charge a higher interest rate, known as the prime lending rate, to clients looking to borrow money from them.
From a market-stability standpoint, a pause in the hiking cycle is a welcome relief for homeowners and consumers, especially with the Christmas season around the corner. According to industry professionals, a steady repo rate builds and retains confidence in the economy and by extension, the residential housing market.
However tempting it may be to monopolise a low interest rate cycle by adding high-risk investments and high-loan agreements, homeowners should take a conservative approach to spending and instead focus their energy on saving. Long-term financial security is based on responsible and conscientious budgeting, spending and saving - especially in times of “relief” when the pressure is eased ever so slightly and overindulgence is an attractive option.
Homeowners, especially those under financial strain, should not take on any more credit commitments. Rather, homeowners should work towards alleviating any existing financial pressure by taking advantage of interest rate stability and settling their debt or building a cash reserve.
For aspirant homebuyers and homeowners, making the most of interest rate stability is today’s market means a commitment to clearing debt, responsible spending and a greater focus on saving. This guarantees that future property purchases and loan repayments are well within the homebuyer/owner’s affordability bracket.
A number of factors are forecast to adversely affect the South African (and global) economy in 2018. Although some economists predict an interest rate cut in the near future, other strategists expect further financial constraint with rising electricity tariffs and a weakening rand. Essentially all agree that consumers should continue to spend mindfully and cautiously over the coming months.
The festive season is around the corner - and with rising costs, reduced affordability and poor consumer confidence in mind - the most important gift you can give yourself this Christmas season is the peace of mind financial security provides.