South Africa’s MPC has decided to hold interest rates at 7.5%, influenced by global trade uncertainties. The decision reflects a cautious approach to macroeconomic stability, despite mixed expectations for a potential rate cut. The property market remains robust, with changes to transfer duties expected to bolster affordability for first-time buyers, while investor confidence remains high amid regulatory changes.
The Monetary Policy Committee (MPC) of the South African Reserve Bank has decided to maintain the policy rate at 7.5%, with four members supporting this decision while two members pushed for a 25 basis point cut. Consequently, the prime lending rate will remain at 11%. This pivotal decision has been influenced by ongoing uncertainties in global trade and domestic budgetary concerns.
Governor Lesetja Kganyago indicated that the MPC reviewed various external scenarios during the meeting. They considered factors such as a potential slowdown in the U.S. economy, which could lead to a weaker dollar and higher commodity prices, including gold. This situation would yield modest benefits for South Africa, resulting in better trade terms and a stronger rand, contributing to slightly lower inflation and policy rates than previously forecasted.
The committee also explored scenarios regarding South Africa’s access to U.S. markets, particularly if the African Growth and Opportunity Act (AGOA) benefits were lost. This loss could decrease exports and growth. A severe scenario, which included a sentiment shock, projected declining growth due to a weaker rand and heightened domestic inflation, forecasting a growth reduction of 0.7 percentage points.
In anticipation of the MPC’s announcement, economists exhibited mixed expectations. Many anticipated a rate cut due to stabilized domestic inflation and a stable rand. Recent consumer price index (CPI) data indicated lower-than-expected rental inflation, minimal electricity price increases, and an impending decrease in petrol prices, further supporting the case for a rate adjustment.
Amidst global uncertainties, Kganyago emphasized the importance of sustaining domestic reforms for growth while ensuring macroeconomic stability. However, the Landsdowne Property Group raised concerns regarding the MPC’s position, rising living costs, and an upcoming value-added tax (VAT) increase potentially hindering positive trends in the residential property market.
Landsdowne CEO Jonathan Kohler noted, “In an environment of rising living costs, affordability remains a major factor. The MPC’s decision to hold interest rates will likely impact investor sentiment short term, as buyers adopt a wait-and-see approach.”
Kohler mentioned that upcoming changes to transfer duties could incentivize buying in more affordable property segments, with certain thresholds exempt from duties beginning in April 2025. This initiative aims to enhance affordability, particularly for first-time buyers, which could invigorate the property market.
Despite growth concerns, the Absa Homeowner Sentiment Index for Q4 of 2024 indicates sustained investor confidence, with 85% of investors optimistic about expanding their portfolios. Kohler encouraged investment, citing Gauteng’s property value as particularly appealing due to stagnant prices over the last decade. The GDP projection for Q1 2025 is 0.4%, while Q2 is forecasted at 0.5%. The MPC is predicted to initiate a rate-cutting phase in May, possibly lowering the repo rate to 7.25% for the year’s remainder.
In conclusion, the MPC’s decision to maintain a stable policy rate reflects prevailing uncertainties in both global trade and domestic economic conditions. While this choice aims to safeguard macroeconomic stability, investor sentiment remains strong, particularly in the residential property sector. The upcoming changes in transfer duties could further stimulate market activity, especially for first-time homebuyers. Overall, while regional growth pausing could pose challenges, investor confidence persists, suggesting a resilience in the market going forward.
Original Source: www.zawya.com
