Interesting Interest Rate Hike

The unexpected has happened. Worried about inflation, with an eye on the weak rand and the rate of capital outflows from ZA, the Monetary Policy Committee of the Reserve Bank has raised ZA interest rates by 50 basis points. Governess Gill Marcus said that it had not been a unanimous decision – two of the committee had wanted to keep rates steady. However, with Turkey, Brazil, India and elsewhere in a rate rising rally, she and her team clearly decided it was wise to jump in. And the scale of the hike – twice the 25 basis point increase that might have been chosen – also sent a message. These people have a mandate to manage inflation, inflation is forecast this year to jump above the 3% to 6% target band, and the Reserve Bank must not hesitate to act.

The move will be welcomed, of course, by those in a comfortable financial position, who will enjoy better returns on their deposits. However, it can only act as a dampener on the property market.

Here is what Pam Golding Properties’ Dr Andrew Golding sad to say:

“While inflationary concerns and global economic impacts remain in the spotlight, the Monetary Policy Committee’s stance to increase the repo rate was unexpected, particularly given the sluggish economic growth currently experienced in South Africa. Despite this, the residential property market continues to reflect increasingly positive market sentiment and activity, fuelled by the fact that the market – including both buyers and sellers – has realigned itself in accordance with current trading conditions and the more exacting bank lending conditions required of purchasers.”

Conclusion:

More reaction will continue to pour in, but for now I can just worry that the disposable income of millions of South Africans will continue to shrink – with high food inflation, rising motoring costs and now higher monthly payments on home loans, car loans, credit card balances, overdrafts and so on. And today’s interest rate hike may not be the last…..


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