Unchanged repo rate widely welcomed by the property market

Posted On Thursday, 29 January 2015 19:05 Published by
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The repo rate is to remain unchanged at 5.75%, Reserve Bank Governor Lesetja Kganyago said.

Lesetja Kganyago

The decision follows the first three-day meeting of the year by the Monetary Policy Committee (MPC). "The MPC has unanimously decided to keep the repurchase rate unchanged at 5.75% per annum," Kganyago said.

According to the bank, food prices remain a major source of inflation pressure. However, the moderation observed in recent months is expected to continue.

Commenting on the decision, Mduduzi Ngwenya, MD of eProp Commercial Property News said "the decision to keep the interest rate unchanged is widely welcomed by the property market and speaks to MPC's need for a stable environment to do business. Households have some breathing space to recover from the festive season spending to continue the trend of reducing household credit.

The decision also bodes well for corporate action; specifically acquisitions financed partly through debt instruments. 2015 promises to be another year of the survival of the largest funds in the commercial property space."

Kay Geldenhuys, Ooba's property finance processing manager comments: "The decision is a great relief to South African property owners. The relatively low interest rate environment that continues to prevail is good news for the residential housing market as it gives prospective home buyers an opportunity to acquire property and secure home loan finance at an affordable cost of credit.

Relatively low interest rates and the expected drop in the inflation rate, driven by lower fuel prices, will support growth in the residential housing market in 2015."
The rand exchange rate against the US dollar remains an upside risk to the inflation outlook.

Additionally wage and salary increases in excess of inflation and productivity growth remain an upside risk to the inflation outlook. When coming to electricity constraints, the bank said the impact of monetary policy accommodation or growth is likely to be limited in the absence of progress being made in the alleviation of electricity constraints.

The repo rate has remained unchanged since a 25 basis points rate hike in July 2014. Market consensus was for the repo rate to remain unchanged. Kganyago said the MPC is aware that the moderation in inflation could raise expectations of lower interest rates. The MPC is of the view that the bar for further accommodation remains high and would require a sustained decline in the inflation rate and inflation expectations.

Core inflation is expected to average 5.5% and 5.1% in 2015 and 2016 respectively, from 5.7% and 5.3% previously. The peak is expected at 5.8% in the first quarter of 2015. The MPC said the domestic economic growth outlook remains subdued.

The bank's forecast for growth in 2015 has been revised down from 2.5% to 2.2%, and that for 2016 from 2.9% to 2.4%. "This forecast attempts to take account of electricity supply disruptions, which more than offset the positive growth impact of lower oil prices."

Last modified on Thursday, 29 January 2015 20:07

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