MPC ANNOUNCES GOOD NEWS FOR HOUSING MARKET: INTEREST RATES UNCHANGED
To the relief of all South Africans, the Monetary Policy Committee (MPC) announced today that interest rates will remain unchanged until their next meeting in May. The prime lending rate therefore remains at 10.25% and the repo rate at 6.75%.
“The decision to keep interest rates unchanged is a relief for South Africans, as well as for the state of the South African housing market. With ongoing concerns surrounding our national power utility, rising international fuel costs, and a weakening Rand, an interest rate hike at this time would have pinched consumers even further, stifling the possibility for economic growth and slowing the initial house price correction we’ve seen since the beginning of this year,” says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.
Though most economists anticipated that rates would remain unchanged at this meeting, the risk of a hike did remain. Annual consumer price inflation increased to 4,1% in February 2019, up ever so slightly from 4,0% in January. The MPC has warned that it will adjust interest rates should negative risks push inflation beyond the mid-point (4.5%) of their target range of between 3% and 6%.
“As it stands, house price growth is only marginally outgrowing inflation. The Standard Bank House Price Index (HPI) placed house price growth for February at 4.3% y/y, down from 4.4% y/y in January. By keeping interest rates unchanged, the MPC has allowed the housing market to continue its gradual correction following a year of house price decline in relation to inflation levels during 2018,” says Goslett.
Goslett therefore encourages buyers to enter the market as soon as possible before prices begin their upward climb. “Following the elections in May, it is possible that the property market could begin a gradual shift into a seller’s market over time, lessening the opportunities for buyers to pick up a good deal. Beyond this, should inflation continue to rise and the MPC should later decide to raise interest rates, buyers who get into the property market early will have bought themselves a few months of lower bond repayments in the early years of their bond’s lifespan where the majority of your monthly instalment goes towards paying off interest,” Goslett concludes.