The Reserve Bank's rate reduction: A new chapter for the South African economy?

Source: Reuters.

Members agreed there was scope now to make the policy stance less restrictive, and that the outcome was expected in light of the positive economic indicators. This includes inflation at a historic low of just under 3.3% on average for the year, and despite the recent uptick, still comfortably within the Bank’s proposed new lower target range of 2 to 4%.

The currency also remains stable below R18.00 to the USD, recently strengthening to around R17.20.

Further good news for the economy includes the Grey List exit, and S&P credit rating upgrade to BB (the first in 20 years), positive job-growth data for the last quarter and a slightly better growth outlook, says Samuel Seeff, chairman of the Seeff Property Group.

Relief for homeowners

Local property experts are in agreement that this change by the South African Reserve Bank (Sarb) has been a more accommodative approach to economic recovery and will assist in improving buyer confidence in South Africa.

"The cut brings further vital relief to the economy, lowering the cost of debt and freeing up more disposable income to spend in the economy, especially ahead of the busy annual retail season," Seeff says.

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Regional director and chief executive officer of Remax Southern Africa, Adrian Goslett, adds that “the decision by the Sarb to lower interest rates during the current global economic climate is a favourable approach to aid in financial relief for many South Africans.

"As a result of stagnant economic growth, this small rate cut can provide a financial buffer for homeowners and prospective buyers across the country."

Adds Seeff: "The cut will further lower the cost of home loans, and improve property affordability, a great incentive to attract more buyers to the market. This will stimulate more demand, which in turn is good news for sellers and overall sales volumes."

Market confidence rising

Seeff explains that the four rate cuts since last year have brought significant savings for home owners and prospective buyers.

"The savings on the monthly repayment on a R1m home loan (over 20-years) is now down by over R1,000 compared to mid-2024. This is a great incentive to buyers, especially for more first-time buyers to get into their own homes."

Asserts Goslett: “We remain optimistic that the decision by the Sarb may signify the start of renewed growth in the property market as we head into the new year.

"In the meantime, we encourage potential buyers to make use of these more accessible lending conditions and the favourable property prices that are currently available.”

While the cuts have been most welcome, Seeff warns that the interest rate is still slightly higher compared to the pre-Pandemic level, and the property market has not yet fully recovered.

“Given that inflation is at a historic low and expected to remain within the proposed new inflation target rate, we would urge the Bank to consider a further rate cut in January,” he concludes.