Many in the country expect South African Reserve Bank Governor Lesetja Kganyago to announce a cut in interest rates this coming week. File picture: Independent Newspapers.
SOUTH African consumers will be waiting with bated breath this coming week, hoping for news of a cut in interest rates when the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) meets.
On Thursday, September 19, the nation will find out if they will get some leeway in their monthly budgets as SARB Governor Lesetja Kganyago announces the bank’s decision.
The repo rate is currently at a 14-year high of 8.25% and the prime lending rate is at 11.75%.
While the SARB has held firm on an 8.5% rate for months on end, there are plenty of whispers across the economic industry that a cut is finally due and may even be bigger than expected.
Frank Blackmore, the lead economist at KPMG South Africa, told Business Report that the recent reductions in the CPI headline inflation number to the current 4.6% will allow the MPC room in September to reduce interest rates.
Blackmore said: “This follows a long decline from July of 2022, when a high of 7.7% was recorded to that current 4.6%, which is only 0.1 percentage points above the target rate. Initially, the reduction in interest rates will be conservative at 25 basis points, but can be followed by 50 basis point reduction in November, if this trend and moderate inflation continue.”
Apart from consumers who are paying back debts, the automotive industry as well as the property sector have been hard hit from the elevated interest rates.
Calvin Crick, the managing director for transaction services at Cushman and Wakefield, said that from September this year, several central banks globally were expected to deliver their first interest rate cut in many years.
“An interest rate cut would depend on the US consumer inflation rate reaching its central bank’s 2% target, and the state of the labour market. However, market watchers have interpreted [US Fed chair Jerome] Powell’s comments as the US central bank preparing to cut interest rates at its mid-September meeting by between 25 and 50 basis points,” Crick said.
“The South African Reserve Bank will watch the US central bank’s moves closely. It appears the Reserve Bank has been waiting for the US central bank to start cutting before it embarks on its own interest rate-cutting cycle.
“As it turns out, several economic developments in recent weeks are paving the way for the Reserve Bank to prepare for an interest rate cut in September. It would be the first cut since the bank started raising rates in November 2021,“ he further said.
Crick added, “A long-awaited interest rate cut would transform the commercial property sector. As a leader in the property sector, Cushman & Wakefield has a direct line of sight to the impact of lower interest rates on financing solutions for property purchases, valuations and profits that investors can generate.”
A direct benefit that property owners and investors would notice is lower borrowing costs. This would make it cheaper for investors to finance property purchases.
“I believe that this could increase the demand for commercial properties. After all, the property sector is capital-intensive and any reduction in borrowing and capital costs would be welcomed,” Crick said.
– BUSINESS REPORT