The Reserve Bank’s Monetary Policy Committee (MPC) has voted to cut the repo rate by 25 basis points to 6.25% (from 6.5%) reducing the mortgage rate to 9.75% (from 10%).
Speaking at the MPC announcement on Thursday (16 January), Reserve Bank governor Lesetja Kganyago said that the decision was unanimous and that monetary policy actions will continue to focus on anchoring inflation expectations near the mid-point of the inflation target range of between 4-6%.
“In this persistently uncertain environment, future policy decisions will continue to be highly data-dependent, sensitive to the balance of risks to the outlook, and will seek to look-through temporary price shocks.
“The implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicated two repo rate cuts of 25 basis points each in the first and fourth quarters of 2020.
“This remains a broad policy guide which could change in either direction from meeting to meeting in response to new developments and changing data and risks,” he said.
Kganyago added that the domestic economic outlook remains fragile.
“Despite a rebound in local GDP in the second quarter of 2019, GDP contracted in the third quarter. The fourth quarter is expected to show some positive growth.”
The inflation forecast generated by the SARB’s Quarterly Projection Model (QPM) averages 4.1% in 2019 (down from 4.2%), 4.7% for 2020 (down from 5.1%) and 4.6% for 2021 (down from 4.7%).
Rate cut welcomed
The move has largely been welcomed – especially by the real estate sector – which felt that a cut was long overdue.
“The sentiment boost of a rate cut should not be underestimated. South Africa’s interest rate is higher relative to the rest of the world and out of step with the economy which is struggling while consumer and investor confidence is at record-low levels,” said Samuel Seeff, chairman of the Seeff Property Group.
“We have been in a holding pattern for about eighteen months and it is time for decisive action from the Reserve Bank to take responsibility and provide support for the economy.”
Andrew Golding, chief executive of the Pam Golding Property group, said that contained inflation, which is currently close to the lower limit of the Reserve Bank’s inflation target, made the case for an easing in the repo rate.
“With subdued growth and muted inflationary pressures, the Reserve Bank’s decision is welcome – particularly given the heightened uncertainty ahead of the 2020 Budget speech and likely downgrade of SA’s credit rating to junk status by Moody’s in March.
“Yet despite the ongoing economic challenges faced, including the reintroduction of load shedding, we continue to see signs of green shoots in the residential property market place,” he said.
“Having experienced a period of correction in regard to house prices, first-time and a mix of other home buyers are seeing the market in a positive light, further buoyed by financial institutions’ robust appetite for lending. This is enabling more aspirant buyers to gain a foothold on the property ladder.”