The MPC held South Africa’s interest rate at 7.5%, influenced by global trade uncertainties. Mixed economist expectations were noted, with stability in inflation and concerns over economic growth affecting investor sentiment. Changes in transfer duties may stimulate the property market, although rising living costs pose challenges. Investor confidence remains high, despite some economic growth metrics being adjusted downward.
The Monetary Policy Committee (MPC) has decided to maintain the policy rate at 7.5%, despite varying opinions among its members. Four members advocated for this stance while two proposed a 25 basis point cut, leaving the prime lending rate at 11%. This choice was influenced by uncertainties in global trade and national budget policies.
Governor Lesetja Kganyago highlighted that the MPC analyzed various external scenarios during their meeting. They assessed the impact of a potential economic slowdown in the United States, which could yield slight advantages for South Africa due to better terms of trade and a stronger rand. However, they also considered the ramifications of losing AGOA benefits, which could diminish exports and growth prospects.
The worst-case scenario discussed included a sentiment shock that would lead to a weaker rand, elevating domestic inflation and tightening the policy stance further. This situation could reduce growth by 0.7 percentage points, although some benefits from tariffs on exports may mitigate this effect. Economists were divided ahead of the announcement, with some predicting a rate cut based on stable inflation and steady rand values.
Kganyago emphasized the necessity of domestic reforms to maintain economic growth and stability amidst global challenges. However, analysts from Landsdowne Property Group warned that the Reserve Bank’s cautious interest rate approach, coupled with rising living costs and a VAT increase, might impede growth in the residential property market.
Jonathan Kohler from Landsdowne remarked on how rising living costs impact affordability, cautioning that the MPC’s decision could dampen investor sentiment. He noted that potential homebuyers may lean toward renting for cost certainty.
In contrast, changes in transfer duty regulations, effective April 2025, could stimulate the property market’s affordable segment by exempting purchases up to R1.210m from duties. This legislation is anticipated to attract first-time buyers and increase market activity. Although higher-end markets will face greater duties, the overall impact is expected to be minor due to buyers’ financial capability.
Despite economic growth concerns, investor sentiment remains strong, with 85% of investors expressing optimism about portfolio expansion, as per the Absa Homeowner Sentiment Index for Q4 2024. Investors are keen to capitalize on current property values, especially in areas like Gauteng, where prices have stagnated for years.
Projected GDP growth for Q1 2025 is 0.4% and 0.5% for Q2, slightly adjusting down the current year’s estimate from 1.8% to 1.7%. The MPC is anticipated to initiate a rate-cutting pattern in May, possibly lowering the repo rate to 7.25% and maintaining it for the year.
The MPC’s decision to keep interest rates steady at 7.5% reflects ongoing global trade uncertainties and domestic economic conditions. While the analysis revealed potential benefits from external scenarios, concerns about local inflation and economic growth persist. Key shifts in property market regulations could influence investor behavior positively, despite rising living costs. Overall, the outlook suggests cautious optimism among investors and the potential for strategic rate adjustments moving forward.
Original Source: www.zawya.com
