The South African MPC has kept the interest rate at 7.5%, amidst global trade uncertainties. Governor Lesetja Kganyago discussed potential economic scenarios, noting the importance of maintaining macros stability. Economic growth expectations are tempered, but upcoming changes in transfer duties may encourage property market activity.
The Monetary Policy Committee (MPC) of South Africa has decided to maintain the policy rate at 7.5%, with a majority of members supporting this measure amidst global trade uncertainties and budgetary concerns. The prime lending rate remains unchanged at 11%, following this decision. South African Reserve Bank Governor Lesetja Kganyago noted that the committee evaluated various external factors during their meeting, particularly looking at potential economic slowdowns in the U.S. and their subsequent effects on South Africa’s economy.
Governor Kganyago elaborated on various scenarios discussed by the MPC, including the implications of losing access to U.S. markets under AGOA and the potential tariffs on South African exports. A particularly adverse scenario included a depreciation of the rand, which could contribute to higher domestic inflation and necessitate a tighter policy stance. In this case, the GDP growth would decline by 0.7 percentage points.
Leading up to this announcement, economists expressed mixed expectations regarding a potential interest rate cut, with some citing stabilization in domestic inflation and the rand. Recent consumer price index (CPI) data indicated subdued price pressures. Additionally, reduced electricity price increases and anticipated petrol price cuts were believed to have a positive impact on inflation dynamics.
Kganyago emphasized the importance of sustaining domestic reforms to foster growth while maintaining macroeconomic stability in light of the challenging global environment. Landsdowne Property Group highlighted that the Reserve Bank’s cautious stance on interest rates and rising living costs could negatively affect the residential property market’s momentum.
Jonathan Kohler, CEO of Landsdowne, pointed out that the decision to hold interest rates may prompt a cautious approach among buyers, potentially leading them to continue renting. However, recent adjustments to transfer duties set to take effect in 2025 could stimulate buying activity in the more affordable property segments.
Kohler noted that purchasers of properties valued under R1.210 million will no longer pay transfer duty, which may make the market more attractive to first-time buyers and stimulate various property segment activities. In contrast, while the luxury property market faces increased transfer duties, its impact may be minimal due to the financial flexibility of buyers in this segment.
Despite economic growth concerns, investor confidence remains high, with the Absa Homeowner Sentiment Index indicating that 85% of investors are keen on expanding their portfolios, the highest rate since 2016. Kohler commented on the value opportunities in Gauteng, citing stagnant house prices in recent years.
Projected GDP growth for the first quarter of 2025 is 0.4%, with a slight adjustment downwards in the growth forecast for the current year from 1.8% to 1.7%. The MPC is anticipated to resume interest rate cuts in May, likely lowering the repo rate to 7.25% for the remainder of the year.
In summary, the Monetary Policy Committee’s decision to keep interest rates steady reflects the ongoing uncertainties in global trade and domestic inflation trends. While there are mixed expectations regarding economic growth, reforms and market adjustments are crucial for maintaining investor confidence. The anticipated changes to transfer duties in 2025 could further promote activity in the residential property market, enhancing opportunities for first-time buyers and sustaining momentum across various segments.
Original Source: www.zawya.com
