‘Modest’ rate cut brings some relief to consumers

Consumers can breathe a bit easier following the decision taken on Thursday by the South African Reserve Bank (SARB) monetary policy committee to cut the repo rate by 25 basis points.

Announcing the cut, SARB Governor Lesetja Kganyago said central banks were acting with caution.

“The case for caution is further bolstered by the difficult and unpredictable geopolitical environment, with risks of inflationary shocks through trade restrictions and supply chain disruptions, among other factors.

Overall, global conditions have become more favourable, but there are still risks.” The cut places the repo rate at 8%. Professor Bonke Dumisa, an independent economic analyst, said while many had been hoping for a 50 basis points cut, the committee had agreed on the 25 basis points.

“We are reasonably happy with a 25 basis points repo rate cut. We do understand why the SARB had to be very cautious here.”

Old Mutual group chief economist Johann Els said he believed conditions were ripe for a 50 basis points rate cut.

“The SARB has revised its 2024 headline inflation forecast from 4.9% to 4.6%. Its 2025 forecast for headline inflation was revised from 4.4% to 4%. In fact, for all the forecasts for inflation into 2026 it’s below 4.5%. It was a missed opportunity not to cut interest rates by 50 basis points.

It was a conservative decision. I do, however, expect a 50 basis points interest cut in November.”

Professor Raymond Parsons from North-West University’s School of Business and Governance said the cut, while modest, was good news for business and consumers.

“Although the decision remains marginal in terms of present high borrowing costs, it nonetheless represents a positive turning point in the interest rate outlook.

Monetary policy is still in restrictive territory, but the SARB has now recognised that the time had come for interest rate policy to begin to adjust to a largely improved inflation outlook.”

In the property sector, online platform for agents, buyers, sellers and renters Under One Roof said the SARB’s decision to lower the interest rate was welcome relief and would stimulate increased buyer activity, bringing much-needed affordability to first-time buyers and investors. Lynne Krawchuk, CEO at the company, said the decision would have a positive impact across the board.

“With lower borrowing costs, first time buyers and investors are more likely to enter the market and expand their property portfolios. Affordable housing areas and regions with high rental yields will likely see a surge in demand,” Krawchuk said, adding that now may be the time for hesitant buyers to act.

“Competition will likely increase as buyers on the fence rush to take advantage of more favourable lending conditions. For those already looking to buy, now may be the best time to secure a property before prices rise again.”

However, Samuel Seeff, chairperson of the Seeff Property Group, said that while the rate cut was welcomed, it was disappointing that the bank had missed the opportunity for a more robust cut to stimulate the economy.

“There were more than adequate reasons for the bank to provide a 50 basis point cut, and it is concerning that the bank appears to be taking a hawkish stance, particularly since the US Fed opted for a bold rate cut of 50 basis points.

Inflation is down to within the bank’s target range, the currency outlook has improved, as have the economic indicators,” Seeff said.

He said it was simply unacceptable given that the economy and property market needed much more.

“We simply cannot continue to sustain keeping the interest rate so high for so long. It is counter-productive to growth at a time when the economy desperately needs a kick-start.”

Siphamandla Mkhwanazi, FNB’s senior economist, said the 25 basis point cut on its own was unlikely to have a material impact on the property market.

“Instead, we expect that the combination of improved economic activity, a more benign inflation environment, and a now looser monetary policy will not only improve affordability for potential homebuyers, but also stimulate demand and support house price growth,” Mkhwanazi said.

He said lower borrowing costs, combined with the two-pot pension innovation, should support demand, particularly in the interest-rate sensitive segments such as the affordable market and first-time buyer market. Meanwhile, the overall improvement in sentiment on the back of improved policy outlook (Government of National Unity) should support participation by affluent households and foreigners, Mkhwanazi added.

James Williams, head of marketing at Wonga, said servicing debt repayments would become cheaper.

“This is particularly true for those with high-value loans such as home loans and vehicle asset finance.

“As an example, those who have bonds of R1 million can expect to see a reduction of around R200 on their monthly bond repayment.

“While this is great news, especially with another potential repo rate cut on the horizon this side of the year, however consumers still need to remain guarded around their finances and ensure they have a well-planned budget,” Williams said.

The Mercury