The outcome of Thursday’s Monetary Policy Committee meeting could go either way in these uncertain times.
Bradd Bendall, National Head of Sales at BetterBond, said while recent global and local economic indicators might suggest that there is room for a much-needed rate cut, the South African Reserve Bank’s decision remains difficult to call.
“However, we are optimistic that the Reserve Bank will take a bold stance to lower the prime lending rate by at least 25 bps. It seems like the right time to adopt a more accommodating approach.
“Inflation has been trending downwards since last year, and the US’s pause on tariff measures has returned some stability to global markets. We have seen the Bank of England and the European Central Bank drop their respective repo rates by 25 bps, and we expect South Africa to follow suit,” Bendall said.
He said that if the rate does drop, it will only be the second cut this year. The shift will certainly bring welcome relief to homeowners and consumers grappling with higher living expenses and fuel tax hikes, he added.
BetterBond said its home loan applications have increased by 2.2% year on year, according to their May data, signalling a recovery in home buying activity after a period of stagnation. It said any further rate cuts will go a long way to boosting the housing market.
“At a time when the world is holding its breath amid global monetary policy shifts, a drop in the prime lending rate would send a strong signal that South Africa prioritises economic growth and market stability.”
On Monday morning, Reezwana Sumad, research analyst at Nedbank CIB, said the final session of last week saw the USDZAR trading at R17.93 at the open.
“Overall, the local unit posted steady gains. After having had a brief foray towards the R18 00 level, it ended the session trading at R17.84. This morning, the USDZAR is currently trading at R17.81.
“The major currency pairs also traded broadly firmer over the course of the previous session, with the EURUSD trading at 1,1410 this morning from the previous open at 1,1312 and the GBPUSD at 1,3580.
“Possible trading range for the USDZAR today is R17.65 to R17.95. The markets are likely to trade cautiously today, and liquidity is at a premium, as both the London and New York markets are closed. The local unit continues to trade in positive territory, as the USD remains under pressure across the board,” Sumad said.
At the beginning of this month, Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, said he believes that the benefits of an interest rate cut at this time would outweigh the potential risks that the SARB is guarding against.
Thus far, the ongoing global trade tensions and domestic economic challenges have led the SARB to adopt a cautious approach, favouring rate stability to navigate potential risks.
“Reducing the repo rate could boost consumer confidence, increase affordability, and encourage greater economic growth. Lower interest rates translate into reduced monthly repayments on home loans and other debts, putting more money back into consumers’ pockets and stimulating broader economic activity.
“This additional disposable income will positively impact other sectors reliant on consumer spending, driving economic growth across the board,” Goslett said.
Moreover, Goslett added that an interest rate cut will send a strong positive signal to international and local investors, reinforcing confidence in South Africa’s economic recovery trajectory, especially following the instability around VAT.
Despite inflation being the lowest it has been since June 2020, economists widely anticipate that the SARB will keep the repo rate unchanged later this week.
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