Given that the country’s economic growth remains tepid, a reduction in the interest rate would have given the economy a much-needed kick-start, particularly as inflation is increasingly under control.

There is a case for local interest rate relief, firstly because there seems to the likelihood of a US rate decrease following evidence of a slowing economy, a softening labour market and easing price pressures in recent weeks, but also because we have had two recent fuel price cuts – with the fuel price currently looking set to remain unchanged in August. Coupled with this the strengthening in the Rand following the formation of the GNU (Government of National Unity) is helping to temper imported price pressures, and local food price pressures have also abated.

The likelihood that interest rates will begin to be cut at the MPC meeting in September (2024) has increased since the last (May) MPC meeting. This is the result of improvements in both the local and US inflationary pressures. The MPC is likely to prefer to wait for the US to cut - which is not imperative but would increase the comfort for the MPC that the time is right for cutting - and further evidence that local price pressures are easing.

A key consideration for the MPC is inflation expectations and here too some progress has been made, with all three survey groupings (business, unions and analysts) lowering inflation expectations for the full three-year period covered by the survey. The MPC would prefer to see inflation expectations even lower but they are at least moving in the right direction and it is another two months before the next (September) MPC meeting - so there is time for more data releases to provide confirmation that progress is being made towards achieving the mid-point of the inflation target.

2024 is a year characterised by an unusually large number of elections worldwide, with many of the important elections having now been concluded – and generally favourably received by the financial markets. The key outstanding election, and possibly the most influential, is the US election, which remains a key source of uncertainty for markets and could increase caution among central banks.

Impact on housing market

From a residential property perspective, while the outlook for the local housing market has improved, current economic conditions remain tough, which is keeping housing market activity subdued and household finances under pressure.

This is evidenced in the fact that according to Lightstone statistics, the average number of days a home remains on the market in SA’s five major metro markets has risen from 69 days in 2015 to 92 days for 2024 to date, while according to a recent FNB survey, one of the main reasons for selling in Q2 2024 was downscaling due to financial pressure, accounting for an estimated 21.5% of all sales recorded in their loan book.

Furthermore, ooba statistics reveal that nationally, applications from first-time buyers declined once more in May 2024, reducing to 44.3% in June – a seven-year low - as household finances remain under pressure. First-time home buyers are unlikely to return to the market en masse until interest rates are cut.

In the interim, people continue to buy and sell houses for various reasons including semigration between provinces, changes within the family such as marriage, births and life stage, employment opportunities, or relocation for lifestyle reasons, among others. This ensures that there is still a level of activity regardless of market conditions.

We do anticipate, on balance, that activity will increase toward the year-end as the anticipated rate cuts materialise, boosting market sentiment in general, and which will underpin the emerging recovery in house price inflation.

Overall, the outlook for the local housing market has improved - the GNU is positive for confidence levels – business and consumer – both of which are important for economic growth, with consumer confidence particularly important for the housing market.

The GNU potentially will improve the growth outlook as issues such as power and logistics are resolved – not only will an easing of these bottlenecks bolster economic activity but will also contribute to the softening of price pressures, reinforcing the scope for rate cuts.”