The Monetary Policy Committee has maintained the interest rate at 7.5%, citing global trade uncertainties and domestic issues. Governor Kganyago noted various scenarios impacting the economy, including potential challenges with AGOA. Despite mixed economic outlooks, investor confidence is high, especially regarding opportunities in the property market, with an anticipated rate cut in May 2025.
The Monetary Policy Committee (MPC) has decided to maintain the policy rate at 7.5%, a consensus supported by four members, while two members suggested a 25 basis point reduction. Consequently, the prime lending rate will also remain at 11%. This decision occurs against a backdrop of global trade uncertainties and national budgetary concerns.
Lesetja Kganyago, Governor of the South African Reserve Bank, remarked on the complexities faced during the meeting. The MPC examined various external scenarios, including a potential slowdown in the United States that could impact South Africa positively due to better terms of trade. This, coupled with a stronger Rand, would likely lead to lower inflation and an unchanged policy rate in relation to the baseline forecast.
Furthermore, the MPC analyzed South Africa’s trade implications, particularly involving the African Growth and Opportunity Act (AGOA). If South Africa were to lose AGOA benefits, there would likely be a decline in exports and growth. Conversely, a potential tariffs imposition on exports could exacerbate these negative effects, warranting a cautious outlook.
Expectations leading up to the MPC announcement were varied. Many economists predicted a likely 25 basis point cut, supported by recent data indicating stable domestic inflation and a resilient Rand. Indicators, such as subdued rental inflation and lower electricity price increases, reinforced the momentum for a potential rate cut.
Governor Kganyago emphasized the necessity of upholding domestic reforms that foster growth amidst global uncertainties. Nevertheless, the hawkish disposition of the South African Reserve Bank, in conjunction with rising living costs and an imminent VAT hike, may hinder progress in the residential property market.
Jonathan Kohler, CEO of Landsdowne Property Group, observed: “In an environment of rising living costs, affordability remains a major factor.” The MPC’s rate hold, alongside economic growth uncertainties, may dampen investor sentiment as potential buyers adopt a cautious stance.
Kohler also noted that upcoming modifications to transfer duties could invigorate the residential market, especially in lower price brackets, as those buying properties valued below R1.210 million will be exempt from transfer duties starting April 1, 2025. This presents a considerable improvement aimed at stimulating interest from first-time buyers.
In contrast, while higher-end properties are subject to increased transfer duties, Kohler asserted that this financial change would minimally impact affluent buyers. Investor confidence, however, remains robust, as indicated by the Absa Homeowner Sentiment Index showing 85% of investors optimistic about portfolio expansions—the highest since 2016.
For the first quarter of 2025, GDP growth projections stand at 0.4%, with an increase to 0.5% anticipated for the second quarter. The MPC is expected to initiate a rate-cutting trend in May, aiming to lower the repo rate to 7.25% for the remainder of the year.
In summary, the South African Monetary Policy Committee has opted to hold the interest rate steady amid global trade uncertainties and domestic economic considerations. Governor Kganyago has highlighted potential scenarios that could affect the economy, including changes in export dynamics. Despite concerns regarding economic growth, investor confidence remains resilient, particularly with expected reforms stimulating the property market. Looking ahead, a potential rate cut is anticipated in May 2025 as economic adjustments continue.
Original Source: www.zawya.com
