The Monetary Policy Committee of South Africa has held the policy rate at 7.5% due to concerns about global trade uncertainties. While there were mixed expectations regarding a potential rate cut, adjustments to transfer duties could encourage activity in the affordable property sector. Investor confidence remains high despite economic growth challenges.
The Monetary Policy Committee (MPC) has decided to maintain the policy rate at 7.5%, with four members supporting this action and two members advocating for a 25 basis point reduction. Consequently, the prime lending rate remains unchanged at 11%. This decision arises due to ongoing uncertainties concerning global trade and issues tied to the national budget.
South African Reserve Bank Governor Lesetja Kganyago highlighted that the MPC explored various external scenarios due to the unpredictable global environment. One consideration was a slowdown in the United States, which could lead to a stronger rand and better terms of trade for South Africa, resulting in reduced inflation and policy rates relative to baseline forecasts.
The committee also examined scenarios which might stem from changes in South Africa’s access to US markets. The potential loss of African Growth and Opportunity Act (AGOA) benefits could adversely affect exports and economic growth. Additionally, the most severe outcome would involve a depreciation of the rand and heightened domestic inflation, ultimately tightening the policy stance with lower growth forecasts.
Leading up to the announcement, economists displayed varied expectations. Many anticipated a possible 25 basis point cut, influenced by stabilized domestic inflation and a stable rand. Recent consumer price index (CPI) data signified reduced price pressures, and lower-than-expected electricity price increases and potential petrol price cuts contributed to improved inflation dynamics.
Governor Kganyago emphasized the importance of sustaining domestic reforms to foster growth while maintaining macroeconomic stability amid the challenging global landscape. Conversely, Landsdowne Property Group expressed concerns that the Reserve Bank’s hawkish interest rate approach, combined with rising living costs and an anticipated VAT increase, could hinder progress in the residential property market.
Jonathan Kohler, Chief Executive Officer of Landsdowne, noted that rising living costs and the MPC’s decision to maintain interest rates may dampen short-term investor sentiment, leading buyers to adopt a cautious stance. He pointed out that potential buyers might choose to rent instead of purchase due to the stability provided by fixed-cost leases.
Changes to transfer duties, however, are expected to encourage buying activity in the more affordable property market segments. From April 1, 2025, buyers of properties valued up to R1.210 million will be exempt from transfer duty, increasing from the previous threshold of R1.1 million. Kohler highlighted this adjustment as a significant boost for the market, especially benefiting first-time buyers.
Despite economic growth concerns, investor confidence remains strong. The Absa Homeowner Sentiment Index for the fourth quarter of 2024 indicates that 85% of investors are optimistic about portfolio expansion, marking the highest confidence level since 2016. Kohler asserted that savvy investors will seize value opportunities in Gauteng, where house prices have stagnated for nearly a decade.
Projected GDP growth for the first quarter of 2025 stands at 0.4%, increasing to 0.5% in the second quarter. Furthermore, the growth forecast for the current calendar year has been revised slightly downward from 1.8% to 1.7%. The MPC is anticipated to resume its rate-cutting cycle in May, potentially reducing the repo rate to 7.25% for the remainder of the year.
In summary, the Monetary Policy Committee’s decision to maintain the interest rate at 7.5% reflects caution amid global trade uncertainties and domestic economic dynamics. Although there are varied expectations regarding future rate cuts, the aspects surrounding transfer duty adjustments may stimulate the more affordable property market segment. Investor confidence remains robust, potentially countering some concerns over economic growth as the forecast suggests slight improvement in growth rates.
Original Source: www.zawya.com
