The decision by South Africa’s Reserve Bank to cut interest rates by 25 basis points, bringing the repo rate to 6.5% and the prime lending rate of banks to 10%, after the Monetary Policy Committee (MPC) meeting today, will provide much needed relief to the consumer who is generally highly indebted. International ratings agency Moody’s stable outlook for South Africa certainly influenced this decision by the MPC.
We believe this signals the turning point in the interest rate cycle. With the Rand relatively strong and inflation at its lowest level for several years, this is hopefully the first of a few cuts in 2018.
South Africans have experienced continuous economic pressures in recent times. Consumers have been in a price pinch with rising costs, increased taxes, heightened unemployment and economic instability.
So, in short, the repo rate cut is very good news. There will definitely be a direct impact on reduced repayments with regards to household debt. Furthermore, we predict an increase in consumer confidence and real estate demand over the short to medium term.
Increased consumer confidence influences a multitude of other markets and sectors and with increased economic activity from a holistic perspective South Africa’s path to further economic stability becomes a closer beacon.
Creating favourable conditions for investors and buyers to enter the market is a priority. An environment conducive to financial and economic positivity ensures there are more entrants from a larger diversity of backgrounds. In addition, for those who are already active in the market this translates into higher investment returns and a far reaching trust in the country’s economic stability.