The South African Reserve Bank (SARB) is set to hold the repo rate during their meeting taking place between the 20th to 22nd of July 2021. This is according to 97% of economists in Finder’s repo rate forecast report.
Several panellists, including the Head of South African Economic Research at Standard Bank, Elna Moolman, believes the rate will and should hold while the economy remains in recovery mode.
“In our view, the economy still needs as much as the policymakers can prudently provide. SARB is supporting the economic recovery prudently by keeping interest rates at multi-decade lows while the inflation forecasts generally drift around the mid-point of its 3 – 6% target range” she noted.
“There is – at this stage – no inflationary reason to hike interest rates so SARB can prudently keep monetary policy accommodative”.
However, one panellist, Senior Lecturer at the Tshwane University of Technology, Mulatu Zerihun, thinks SARB will and should cut the repo rate by 50 basis points.
“Such a slight cut by 50 basis points on the policy rate will assist to contain inflation at its target range for the remaining months of 2021. In addition, it halts the adverse effects of higher prices for food, electricity, and oil in the country” he said.
Zerihun is not alone. One in five of the panellists (22%) say the rate should move, with 16% recommending a rate cut and 5% recommending an increase.
Professor Adrian Saville from the Gordon Institute of Business Science is one of the two panellists (5%) who thinks SARB will hold the rate but who has recommended an increase.
“Inflation risk is real and rising. SARB’s mandate is to look after inflation and the purchasing power of the rand. Not to manage growth. Taylor Rule and other models make the case for a rate hike,” he said.
While an increase in July seems unlikely, 27% of panellists think SARB will increase the repo rate this year – 8% say we could see a hike as soon as September, with 19% forecasting a November increase.
However, most of the panellists do not believe we will see a rate increase until 2022 (70%). 54% expect the rate to increase in the first half of 2022, while 16% expect an increase in the latter half.
Just one panellist, Managing Director of Xesibe Holdings Ayabonga Cawe, expects the rate to first increase in 2023.
Regardless of when it happens, most of the panellists (89%) expect the next rate movement will be up.
Sentiment towards buying versus renting
With sentiment towards buying, rather than renting, at its highest level since the introduction of the Absa Homeowner Sentiment Tracker, 69% of the panel expect this trend to reverse as interest rates increase.
Alexander Forbes Chief Economist, Isaah Mhlanga, says sentiment toward buying will reverse as the cost of financing debt goes up.
“When interest rates increase, the cost of servicing debt rises relative to the cost of rental, so people prefer renting when rates are too high,” he said.
However Chief Executive at Pam Golding Property Group, Dr Andrew Golding, says the interest rates will still be low enough for the current sentiment to continue.
Jawitz Properties CEO Herschel Jawitz agrees that sentiment will not reverse once interest rates rise. He thinks any increase will be marginal and therefore will not have a material impact on sentiment.
“… the other key factor is bank lending. Despite the economy, banks have been lending at a particularly good level into the residential market. In addition, property price growth remains subdued, so the buying remains very attractive,” he added.
Property price forecasts
Property prices in South Africa’s ten biggest cities are set to increase by just 3% on average, according to eighteen of the panellists who provided property forecasts.
That is a decrease from Finder’s April report, when the panel expected prices would increase by 5% over the next six months.
On average, Port Elizabeth is expected to increase the most (3.65%), followed by Durban and Cape Town (both at 3.4%). Meanwhile, property prices in cities like Benoni and Pietermaritzburg are set to increase by just 2% or less.