The South African Reserve Bank (SARB) cut the prime rate by 0.25% in January, down to 11%. But economists now say there’s not much chance of further cuts in 2025.
Vanessa Murray, divisional executive for Property Finance at Nedbank CIB, forecasts just two cuts in 2025. Analysts at Investec and Bank of America are even more pessimistic, predicting just one 25-point cut for the year.
What's informing this prediction? Perhaps not the moderate rise in inflation, as this figure is still forecast to stay in its target range, according to SARB Governor Lesetja Kganyago. After falling below 3% towards the end of last year, it is expected to stay around 4.5% in the medium term.
More pertinently, the latest Monetary Policy Committee statement warns of a more challenging global environment. Rising tariffs on global trade – or a full-blown trade war – would push inflation up, forcing SARB to raise interest rates in response. And if the US Federal Reserve raises rates to control its own domestic inflation (also a potential outcome of looming trade wars), that could also force central banks elsewhere to follow suit.
Plus, there are reasons to think that SARB could get tougher on inflation. At the moment, the bank aims to keep inflation between 3 and 6%, but it has been investigating moving that to 2-5%. That would keep interest rates higher for longer. More aggressive inflation targeting could happen as early as this year, according to analysts at PWC.
What difference will the latest cut make for owners and buyers?
Not much on a month-to-month basis. According to the Seeff Property Group, someone with a bond of R1 million and a 20-year repayment period will save R171 a month, or about 1.7% of their R10 322 monthly payment, following the latest 0.25% cut.
Compared to the top of the interest rate cycle in 2023 and 2024, homebuyers are now saving around R510 a month. That’s not nothing, but it’s also overshadowed by recent rises in the cost of living. Less than a week after the latest interest rate cut, the national energy regulator approved an electricity price hike of 12.7%, effective from April. A typical consumer’s electricity costs have almost tripled since 2014.
That means the rate cut on its own won’t be enough to encourage more tenants to buy their own homes. Despite the falling cost of debt repayments, the overall financial pressure on tenants could actually continue to go up.
So far, tenants have been resilient. Data from the PayProp Rental Index shows that arrears are at near-record lows. However, agents may want to be vigilant for early signs of trouble, such as an increase in late rent payments – and have a plan for recovering them.
