Repo rate to hold, but one in five experts think the rate should change
MAIN IMAGE: Dr Elna Moolman
Almost 97% of economists in South Africa expect the SARB to hold the repo rate, but one in five (22%) think the rate should change. A total of 16% are in favour of a rate cut and 5% in favour of an increase.
The South African Reserve Bank (SARB) is expected to hold the current repo rate at the 20-22 July meeting, according to most local economists.
Several experts, including the head of SA economic research at Standard Bank Elna Moolman, noted the rate will and should hold while the economy remains in recovery mode.
“In our view, the economy still needs as much as the policymakers can prudently provide. The SARB is supporting the economic recovery prudently by keeping interest rates at multi-decade lows, while the inflation forecasts generally drift around the mid-point of its 3-6% target range.
“There is at this stage no inflationary reason to hike interest rates, so the SARB can prudently keep monetary policy accommodative,” she said.
However senior lecturer at the Tshwane University of Technology, Mulatu Zerihun, thinks the SARB will and should cut the rate by 50 basis points at the upcoming meeting.
“Such a slight cut by 50 bps on the policy rate will assist to contain inflation at its target range for the remaining months of the year 2021. In addition, it halts the adverse effects of higher prices for food, electricity, and oil in the country,” he said.
Zerihun is not alone in thinking the Bank should cut the rate. One in five experts consulted (22%) say the rate should move, with 16% recommending a rate cut and 5% recommending an increase.
The Gordon Institute of Business Science’s Professor Adrian Saville is one of two panellists (5%) who think the Bank will hold the rate but recommend an increase.
“Inflation risk is real and rising. SARB mandate is to look after inflation and the purchasing power of the rand. Not to manage growth. Taylor Rule and other models make the case for a rate hike,” he said.
While an increase in July seems unlikely, 27% of economists think the SARB will increase the repo rate this year – 8% say we could see a hike as soon as September, with 19% forecasting a November increase.
However, the majority do not think there will be a rate increase until 2022 (70%). 54% expect the rate to increase in the first half of 2022, while 16% expect an increase in the latter half.
Only one economist, Managing Director of Xesibe Holdings Ayabonga Cawe, expects the rate to first increase in 2023.
Regardless of when it happens, most panellists (89%) expect the next rate movement will be up.
Buying versus renting
With sentiment towards buying, rather than renting, at its highest level since the introduction of the Absa Homeowner Sentiment Tracker, 69% of the panel of experts expect this trend to reverse as interest rates increase.
Alexander Forbes chief economist Isaah Mhlanga says sentiment toward buying will reverse as the cost of financing debt goes up.
“When interest rates increase, the cost of servicing debt rises relative to the cost of rental, so people prefer renting when rates are too high,” he said.
However chief executive at Pam Golding Property Group Andrew Golding says the interest rates will still be low enough for the current sentiment to continue.
Jawitz Properties CEO Herschel Jawitz agrees that sentiment won’t reverse once interest rates rise. He thinks any increase will be marginal and therefore won’t have a material impact on sentiment.
“… the other key factor is bank lending. Despite the economy, banks have been lending at a very good level into the residential market. In addition, property price growth remains subdued, so the buying remains attractive,” he added.
Property prices in South Africa’s 10 biggest cities are set to increase by just 3% on average, according to 18 of the panellists who provided property forecasts.
That is a decrease from Finder’s April report, when the panel expected prices would increase by 5% over the next six months.
On average, Port Elizabeth is expected to increase the most (3.65%), followed by Durban and Cape Town (both at 3.4%). Meanwhile, property prices in cities like Benoni and Pietermaritzburg are set to increase by just 2% or less.