Rate Hike Lower than Expected

Yesterday the SA Reserve Bank’s Monetary Policy Committee raised its benchmark repo rate by 25 basis points, taking the repurchase rate to 7.25% and the prime lending rate to 10.75%. While this marked the 8th consecutive rate hike since policy normalisation began in November 2021, the increase was below economist expectations – many of whom predicted at the very least a 50 basis point hike following the MPC’s aggressive stance to curbing inflation in the last three meetings, and the fact that inflation remains well above the midpoint of the 3-6% target range. Consumers should expect rate hikes to continue as long as inflation remains outside the MPC’s target range.

This conservative increase has allowed homeowners with mortgages a small reprieve. The monthly instalment on a new home loan of R1.5 million at the previous prime rate of 10.5% cost R14 976. The latest increase hikes the monthly instalment to R15 228 – an increase of R252. Following the outbreak of the pandemic the MPC kept the repo rate and prime lending rate low, at 3.5% and 7% respectively. The monthly repayments then on a new home loan of R1.5 million with no deposit would have cost the homebuyer roughly R11 639. Just two years later, monthly payments on that R1.5 million home are now R3 589 more expensive.


According to SA Reserve Bank governor, Lesetja Kganyago, economic growth forecasts have deteriorated. Inflation remains a real and active threat to economic growth, which has plummeted in response to the war in Ukraine and its impact on fuel and food prices, as well as domestic pressures such as the climbing cost of electricity, rolling blackouts and other logistical constraints. In light of this, Kganyago announced that the bank feels more confident that it will hit its inflationary target of 4.5% by the end of 2024, despite persistent upside risks to the inflationary trajectory.


Consumers should continue to be cautious in their spending; debt repayments will cost consumers 0.25% more by the end of January and this will significantly impact lower income households already under pressure to meet debt obligations. Many industry experts and leading economists predict rates to peak at 7.5% before South African consumers see the end of the hawkish rate hiking cycle. Projected economic outcomes are uncertain and varied, but those in a position to buy should not be deterred by increasing interest rates. Property remains a solid investment in the long term and the MPC will adopt a more moderated approach to the interest rate in the months to come.

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