ADRIAN GOSLETT COMMENTS ON THE INTEREST RATE ANNOUNCEMENT
Category Financial
Coming off the back of the Reverse Bank’s hawkish communication warning of future rate hikes it was announced today at the third Monetary Policy Committee meeting of 2015 that the interest rate would increase by a further 25 basis points. This brings the repo rate to 6% and the prime lending rate to 9.50%.
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says that a hike in the interest rate right now would only serve to place further pressure on consumers who are already feeling the brunt of the increased cost of living. He notes that at the moment, consumer confidence in the market is suppressed and a further rate hike would further contribute to the diminishing confidence.
According to economists, the Reserve Bank will not need to use an interest rate hike to contain inflation as inflationary pressure is moderate and is likely to stay this way during 2016. The elements that are placing pressure on the inflation forecast are aspects like state administered prices such as electricity and water tariff increases and property rates and taxes, along with the depreciation of the rand. Due to these factors inflation will be continue to be under pressure, regardless of a rate hike.
Goslett says that a rate hike will however impact consumers and sectors that are directly affected by the interest rate such as the property market, which will add to the weakening of the economic growth. Economic growth has seen a slow down since 2011, which is turn has resulting in a relatively flat property market. However that said, interest rate sensitive services such as the property industry have become the main growth engine in economic growth. While the Reserve Bank wanted to normalise the interest rate, any increase while the economy is so weak will only have a negative impact.
It is predicted that the US is only likely to hike its rate in or around September this year, which means that South Africa, taking it led from the US will not have to worry about maintaining its interest rate differential with the US until then. Goslett urges homeowners and potential buyers to continue focusing on paying down their debt and building up their savings. Future rate hikes will impact on affordability levels and aspirant homeowners will need to be prepared for that.
Author: REMAX SA