Disappointing news for South Africans as interest rate remains unchanged

To the disappointment of all debt holders, the Monetary Policy Committee (MPC) announced at their latest meeting that interest rates will remain unchanged at 7.5% (repo rate) and the prime lending rate at 11%.

The stay comes as the gruelling escalation of interest rate hikes brought them to 11.75% last year following the lows of 7% during Covid, and then a slow decline of them since September, which saw them at 11% in January.

All property heads slammed the news as disappointing.

Samuel Seeff, chairman of the Seeff Property Group, Regional director, CEO of RE/MAX of Southern Africa, Adrian Goslett, and Dr Andrew Golding, chief executive of the Pam Golding Property group feels that it was a missed opportunity for the SARB not to cut interest rates at this meeting and was "disappointing news for home buyers".

Seeff said "keeping the rate so high for so long continues to do more damage than good to the economy, especially when it needs vital stimulus to boost growth and job creation, the lack of which pose a far greater risk than inflation. Households are already burdened by the higher cost of credit, including home loans, on top of further Eskom tariff, VAT and tax hike".

SARB governor Lesetja Kganyago, announced the decision this afternoon. The decision was met with much unhappiness throughout, but was not unexpected as the US Federal Reserve in America yesterday (Wednesday) kept interest rates at current levels, but warned of uncertainty in the US economy. 

Kganyago said four members preferred this action, while two favoured a cut of 25 basis points.

"For several quarters we have enjoyed rising confidence in South Africa, with a smaller country risk premium and lower bond yields. However, the global economy is not on a stable footing and there are also domestic uncertainties, which put these favourable trends at risk. This calls for a cautious policy approach. 

"As before, the forecast sees rates stabilising at a neutral level of about 7.25%. This rate path from the Quarterly Projection Model remains a broad policy guide.

"The MPC would like to emphasise that its decisions will be made on a meeting-by-meeting basis, and will continue to be outlook dependent, responsive to data developments, and sensitive to the balance of risks to the forecast.

"Given the uncertain global situation, the MPC spent time during this meeting exploring different external scenarios.

"For one, we considered a slowdown in the United States, with a weaker dollar and higher commodity prices, especially for gold. This implied some modest benefits for the South African economy, given better terms of trade and a stronger rand. Both inflation and the policy rate were therefore a little lower, relative to the baseline forecast.

"We also explored scenarios built around changes in South Africa’s access to US markets. If South Africa were to lose AGOA benefits, we see some weakening of exports and slightly lower growth. If that were compounded with tariffs on South African exports, the effects would be larger.

"The most severe scenario we considered added a sentiment shock, with a weaker rand, higher domestic inflation and therefore a tighter policy stance. In this case, growth would be lower by 0.7 percentage points, with the exchange rate depreciation offsetting some of the tariff effects on exports.

"In a difficult global environment, it is vital to sustain domestic reforms that boost growth, while preserving macroeconomic stability.

"The MPC’s main contribution is to deliver low and stable inflation, with well-anchored inflation expectations. The committee remains vigilant, and ready to adjust policy as needed."

Bradd Bendall, national head of sales at BetterBond, said "while it is unfortunate that the Reserve Bank has decided to hold the repo rate steady, three previous cuts have already had a noticeable impact on the property market". 

Meanwhile regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett, feels that it was a missed opportunity for the SARB not to cut interest rates at this meeting while Dr Andrew Golding, chief executive of the Pam Golding Property group, called the unchanged repo rate "disappointing news for home buyers". 

Goslett said: "While I acknowledge the risks to our inflation expectations, I still think that the SARB acted too cautiously. A rate cut would have provided much-needed relief to consumers who might be facing increased financial strain due to key decisions announced in the Budget Speech. An interest rate cut at this time could have offset some of this potential strain and create greater opportunity for economic growth – which is something our country desperately needs,” he comments.

“With the February 2025 consumer inflation rate unchanged at 3.2% - below market expectations – the Monetary Policy Committee’s decision not to reduce the repo rate was disappointing for existing mortgage holders and aspirant home buyers.

“This means that the SA Reserve Bank repo rate remains 7.5%, while the prime lending rate stays at 11.0%.

Golding said while economists were divided ahead of the MPC decision, some argued that given the sluggish state of the local economy, real (inflation-adjusted) interest rates are too high, suggesting scope for further interest rate relief. Those analysts who predicted no cut at today’s MPC meeting were generally forecasting further interest rate reductions later in the year when – it is hoped – there is more global economic certainty, and as long as inflation remains contained.

Golding said with the February 2025 consumer inflation rate unchanged at 3.2% - below market expectations – the Monetary Policy Committee’s decision not to reduce the repo rate was disappointing for existing mortgage holders and aspirant home buyers.

Goslette however felt that while interest rate hikes are not forecasted for the year, the chance for further interest rate cuts is unlikely. “Those who are already in the market or are hoping to get into the property market should work closely with real estate professionals to make informed decisions as and when market conditions change,” he said.