The SARB’s Monetary Policy Committee (MPC) is set to increase the repo rate at their meeting this week, but by how much is up for debate.
According to Finder.com’s latest SARB Repo Rate Report, a panel of 18 economists, academics, and property specialists unanimously forecast a rate hike with half (50%) predicting a 50 basis points increase, 44% predicting a 75 basis points increase and 6% just 25 basis points.
However, most of the panellists (67%) believe that the MPC should only increase the rate by 50 basis points, with just 28% suggesting a larger 75 basis points increase.
Old Mutual Multi-Managers Strategist Izak Odendaal is in favour of a 50 basis points increase but thinks the MPC will increase the rate by a more aggressive 75 basis points due to “the continued upward pressure on global interest rates, specifically in the US where the Fed is also likely to hike by 75 basis points at the upcoming meeting.”
“…However, the MPC does not need to move quite so aggressively given that domestic inflation pressures remain muted outside of food and fuel,” he argues.
University of the Free State Associate Professor in Banking Johan Coetzee thinks the MPC will – and should – increase the rate by 75 basis points.
“There is simply too much inflationary pressure from food and transport costs not to justify a 75 basis points increase in the repo rate. With the Producer Price Index for July at 18%, global interest rate movements on the up, and the no ending in the Russia/Ukraine situation any time soon, we are unfortunately going to bear the brunt of a faster than normal interest rate escalation cycle.”
Just under a third (31%) of the panel said the MPC risks creating a recession by raising the repo rate too much, with 29% of the panel predicting a recession next year.
Antswisa Transaction Advisory Services CEO and chief economist Miyelani Mkhabela expects a recession in 2023, though he says it can be avoided if inflation is tamed.
“South Africa can avoid recession and achieve a soft landing in 2023 and 2024 by bringing inflation down to an acceptable level, furthermore, the Reserve Bank is expected to expand its forecast and have inflation rate and unemployment rate targeting for economic risk mitigation.”
Property prices in SA
Despite the rising interest rates, some panellists are still forecasting small price increases for South Africa’s property market.
Several panellists, including Johan Coetzee, expect to see Cape Town property prices increase the most. Coetzee thinks prices there will increase by 7%, far higher than his predictions for the other cities included in the survey, with Johannesburg, Pretoria, and Durban set to see small increases of just 3-4%.
ETM Analytics co-head of financial markets Kieran Siney gave a more modest forecast for Cape Town with just a 2% increase, however he expects even smaller increases in cities like Soweto and Port Elizabeth (1% each) and small price drops in other parts of the country, like Johannesburg and Pretoria.
Nedbank analyst Reezwana Sumad thinks Cape Town and Durban will see the biggest increases (6% each), while predicting 1-3% increases for cities like Soweto, Pretoria, and East London.
The forecasted increases in Cape Town are reflected in the boom in residential construction in the Western Cape, which increased by R7.4 billion rand in January to June of 2022 compared to 2021.
Izak Odendaal says the Western Cape benefits from being financially stable, better managed and more investor-friendly compared to other provinces.
“This is particularly true when comparing Cape Town with other metros. The remote-work trend also seems to benefit coastal provinces at the expense of Gauteng.”
EFConsult chief economist Frank Blackmore agrees the boom in the Western Cape can be attributed to its better governance, which leads to better quality of living.
Visiting professor at Wits Business School Jannie Rossouw says the boom has happened in the Western Cape over other areas due to the government’s investor-friendly policies.
“The Western Cape has a DA government with a business-friendly policy approach. The result is that the Western Cape is an attractive investment destination.”