Economists and businessmen on Thursday welcomed the news that the Reserve Bank’s monetary policy committee (MPC) decided to leave the interest rate unchanged for the first time in months.
RNews earlier reported that South Africans with debt could breathe a sigh of relief on Thursday afternoon after the central bank announced that it will keep the repo rate – for the time being – at 8.25%. The prime lending rate remains at 11.75%.
Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, says this is a welcome relief for consumers and a boost for the real estate industry in South Africa.
“Ten consecutive interest rate hikes have hurt the market. This is particularly evident in the decline of first home buyers – those under 35. Lightstone data released last month showed that property transfers to buyers under 35 have decreased over the past ten years from 87,675 (45%) in 2012 to 81,519 (40%) in 2017 and 69,304 (38%) in 2022. This is the share of investors that needs to grow – our home owners of the future. When young buyers cannot afford to get a foothold in the property market, it indicates an economy that is in trouble.”
Geffen believes that although the unchanged interest rate is extremely good news, the country is not out of trouble yet. “The government and the Reserve Bank must work harder to ensure a real and long-lasting economic turnaround. Food price inflation is still too high, the cost of electricity is enormous and the unstable power grid is a major threat to the entire country. This announcement is a good start, but we need stability in the prime lending rate for the rest of the year.”
Brett Herron, secretary general of Good, says he hopes this is a turning point for the “excessive inflation” faced by the country. “Consumers felt more and more pressure from the increased cost of living and low and middle class income households suffered the most.”
Herron says the unchanged interest rate will bring relief, as South Africans have already been hit this month by an increase in municipal and electricity charges.
Mandla Isaacs, head of policy at Rise Mzansi, also welcomes the decision, but says it does not yet provide relief for the cost of living crisis.
“South Africans are experiencing a cost of living crisis which is the direct result of continued, disastrous economic mismanagement by the ANC. South Africans are burdened by high interest rates on the one hand and rising electricity costs, food and transport costs, greater dependence on diesel as an alternative energy source, rising service costs, and a stagnant economy on the other.
“The Reserve Bank pointed out in its statement that load-shedding, the result of an ANC-made, 16-year-long and ongoing power crisis, will mean that our economy will grow by a disappointing 0.4%. With population growth likely higher than that number, our economy is expected to shrink in per-person terms for this year. South Africans can only improve their economic outlook by voting for visionary, capable, economic management at the ballot box, who will deliver public services at a reasonable cost.”
Prof Raymond Parsons, economist from the North-West University’s business school, says that given the recent global and local economic cross-currents, as well as the cumulative impact of previous interest rate increases on the economy, this was the right decision by the Reserve Bank’s monetary policy committee.
“With inflation rates beginning to retreat within the SARB’s inflation target range, the MPC believes it has done enough to curb inflation for now. The fact that lending costs have stabilized for the time being will have a positive impact on business and consumer confidence.”
However, Parsons does not rule out the possibility of further interest rate hikes.
“Interest rates may not have peaked yet. The divided MBK vote reflects these possibilities. These remain future decisions on timing and judgment as new data emerges over the next few months. Although the MPC has revised its GDP growth outlook for 2023 upwards from 0.3% to 0.4%, the growth outlook for 2024 remains very modest, namely 1%.”
Parsons adds that as the MPC statement reiterates, the SARB cannot solve problems that fall outside its remit, such as fiscal policy, energy challenges or administered prices. “Yet such factors feed country risk and therefore interest rates and the exchange rate. The lower the country risk, the easier it becomes for the SARB to carry out its overall mandate. The structural solutions therefore lie not only in monetary policy, but rather in policy direction and implementation as a whole.”