Impact of higher repo rate
2007-06-14
THE decision by the Monetary Policy Committee of the Reserve Bank to increase the repo rate by 50 basis points is not unexpected, given the inflationary concerns expressed by the Governor, says Pam Golding CE Dr Andrew Golding.
“However, in terms of the residential property market, one must bear in mind that this is an immoveable asset invested in over the longer term, and as such, this half a percentage point repo rate increase should not have a significant dampening effect on the market.
“During the first quarter of this year we have seen the housing market stabilise, with the previous interest rate increase having taken effect.
“Economic growth in South Africa remains sound and investment positive, reaffirmed by the ratings outlook by Moody’s Investors Service from stable to positive.
“With the lower end of the market likely to be the most affected by the repo rate increase, particularly given recent fuel and food price increases, and the fact that their property purchase is likely to be more highly geared, thereby making them more vulnerable to higher interest payable on their mortgages, we hope that this is the last of a cycle of repo rate increases.”
* According to Samuel Seeff the interest rate increase was expected, given the increase in inflation rate and particularly in the Producer Price Index over recent months.
“The anticipated slowdown in consumer spending as a result of last year’s interest rate increases hasn’t quite taken effect as yet, but I believe that this increase in the interest rate together with the introduction of the National Credit Act will be what is necessary to slow the economy down and rein in inflation.
“With regard to the property market, I believe that the 0.5% increase will not deter buyers, but rather will put an element of caution into them when purchasing.
“Sellers will need to be realistic when setting their asking prices for their properties in order to find movement. The necessity of having the skills of an experienced agent on board in this particular market cannot be over-emphasised.”
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