The really worrying factor about the unexpected interest rate hike is that it has led to the fear that such hikes may now be continued, says Bill Rawson, Chairman of the Rawson Property Group.
Quoting the financial journalist, Ethel Hazelhurst, Rawson said that it is now clear that the financial markets foresaw this move by the MPC and had already factored in their response. On this occasion, he said, they have proved more perceptive than the majority of South Africa’s economic analysts.
“All of a sudden,” says Rawson, “it looks as if we could see the repo rate being raised by 50 basis points at all forthcoming meetings of the MPC, giving us an 11% standard interest rate within the not too distant future.”
This, says Rawson, is certain to lower South Africa’s economic growth rate, which until now, some economists have predicted would exceed 3% this year and it will definitely slow down home buying. It is likely to also increase the banks’ tendency in difficult times to be ultra-cautious in awarding bonds, which in turn, will reduce the number of bonds awarded.
However, said Rawson, he does not foresee house prices falling because in the middle and lower price brackets stock shortages continue to be almost endemic and are unlikely to be alleviated soon.
Nor, said Rawson, will rents fall in response to higher interest rates: on the contrary, previous experience has shown that increased interest rates always lead to increased rentals and this trend will be reinforced by the reduced numbers able to get bonds and buy homes.
This scenario, said Rawson, will once again work to the benefit of buy-to-let property investors, whose numbers are increasing month-by-month.
Rawson said that arguments will be heard from both sides on this latest MPC move. Those against it will say that it will hammer South Arica’s economy and further raise current drastic levels of unemployment. Those for it will affirm that with the country’s debt increasing month-by-month, South Africa has to follow the example of those emerging economies like India and Brazil which have raised their interest rates to attract First World capital away from their own exceptionally low rate markets.
“It has to be appreciated,” said Rawson, “that with the US Reserve Bank tapering down its assistance packages, funds to emerging markets will be cut back. It is quite possible, therefore, that history will show that Gill Marcus’ decision did help maintain an inflow of capital to SA, albeit not at the rate we would like.”
Those already owning homes and paying bonds in South Africa will probably have to tighten their belts still further to maintain their monthly bond payments and the taking on of second jobs as is often seen in Australia, which he has just visited, could increase.