South Africa

SARB stays the course on interest rates

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The South African Reserve Bank (SARB) has again resolved to hold interest rates steady.

At the Bank’s Monetary Policy Committee meeting on 23 November, a unanimous vote was passed to keep the repo rate unchanged at 8.25% for the third time. The bank has now been tightening monetary policy for two years: the first rise of this cycle came in November 2021 in an attempt to rein in inflation after the COVID-19 pandemic.

Now that inflation is more firmly under control than earlier in the year, the MPC’s stated objective is to “anchor inflation expectations more firmly around the midpoint of the target band” of 3%-6%. Market expectations for inflation in 2023 are currently around 5.8% – just barely within the acceptable range.

The MPC also warns that core inflation is sticky and there is still a significant risk that it could rise again, suggesting that SARB could raise rates further in the new year. However, economists do not expect interest rates to go up any further and still forecast falls later in 2024.

The MPC will next meet on 26 January.

How is the interest rate plateau affecting the housing market?

The cost of servicing bonds has risen sharply over the last two years. A borrower with a R1.5 million home loan would have paid R12 270 more in 2023 than in 2022 at average interest rates.

This has encouraged renters to continue renting, but it has also had a devastating impact on homeowners. According to an analysis from Experian published in the latest PayProp Rental Index, the volume of new loans is well below last year. Meanwhile, many more existing borrowers are defaulting, and wealthier consumers have experienced the biggest increase in their rate of default. In the most affluent consumer group, the share of consumers in default rose by almost 80% year-on-year. If interest rates remain high, it could push large numbers of current homeowners back into the rental market, further increasing demand.

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