On 19 September, the South African Reserve Bank (SARB) will decide whether to adjust interest rates, and this month it could be a tougher call than the past 18 months.
Inflation fell to 4.6% in July – lower than economists expected, and the lowest in three years. That’s well within SARB’s acceptable range for inflation and within a hair of their midpoint target of 4.5%. But is it enough to spur the Monetary Policy Committee (MPC) to ease rates?
At the last MPC meeting in July, two of its six members wanted a reduction of 25 basis points, but a majority agreed that there was still a risk that inflation could rise again. MPC members also pointed out that most foreign central banks had not yet cut rates.
However, international central banks have now begun to move. The European Central Bank made its first rate cut of the currently downward cycle in May and could do so again this month on the back of the drop in inflation. The Bank of England made an initial 25-basis point cut in August, while the Bank of Canada has been more aggressive, cutting rates at each of their past three meetings. The United States Federal Reserve has so far not made cuts, but is expected to do so at its meeting on 17-18 September – just a day before the MPC make their decision.
If not now, when?
It is still entirely possible that SARB could leave interest rates unchanged. Earlier this month, Governor Lesetja Kganyago said that the MPC would need to see sustained low inflation before reducing the prime rate from its 14-year high of 11.75%, and he urged South Africans to be cautious in their spending.
But if the central bank continues its careful approach to interest rates this month, prospects are still good for an interest rate cut before the end of the year if the downward inflation trend continues. The MPC will meet again on 21 November for its final meeting of 2024.
What would an interest rate cut mean for housing in SA?
High interest rates have been putting off prospective first-time buyers, explaining data from the PayProp Rental Index that shows a greater proportion of tenants than ever now fall into higher income brackets. This has given landlords scope to increase rents: after a blip in Q1, rental increases rose to their highest level since 2017 in Q2 2024.
A 25-basis point cut would be a big moment after seven consecutive decisions to hold the interest rate steady, and could well be a sign of future cuts to come. The immediate impact on consumer interest rates would be quite limited, taking the prime rate to 11.5%. However, it could start to encourage first-time buyers back into the market, reducing competition for rental properties and potentially slowing down rental growth.
