May 26 2023
The repo rate hike of 50 basis points which was announced on May 25 was larger than expected and will affect bond repayments, but the good news is that this is likely to be the last increase for a while. This is according to bond originator, BetterBond’s CEO, Carl Coetzee.
The central bank has now hiked rates by 475 basis points of tightening since November 2021. South Africans are battling to live as inflation rises
The 50 basis point hike brought the repo rate to 8.25%. This is in line with what many economists and the market expected. The repo rate is set by the Reserve Bank’s Monetary Policy Committee and is the rate at which it lends money to the country’s commercial banks. The Reserve Bank adjusts this rate in order to keep inflation within its 3% to 6% target range.
The earlier consensus expectation was for 25 basis points, but the rand’s crash to a record low in the wake of US allegations that Russia received arms in South Africa raised inflation risks. A weaker rand will fuel inflation.
Coetzee said there was also something of a silver lining for homebuyers.
“If you purchase at current rates, and you can afford it, you will have more disposable income when interest rates drop,” he said.
Homeowners could even opt to maintain their monthly bond repayments at the same amount when rates eventually drop again, to pay off their bonds sooner and save on interest expenses.
“We always remind consumers that property is a long game. If you budget for interest rate hikes, and you hang in there when interest rates rise, you will be at an advantage when rates start to drop, as they invariably do,” said Coetzee.
alistair@propertyflash.co.za