The prime lending rate has also been increased to 9%, up from 8.5%. While it is true to most market analysts were only expecting an increase in 2015, the weakened Rand seems to have pressured the MPC into the move.
Inflation also played a leading role in the decision with Reserve Bank Governor, Gill Marcus stating that "the primary responsibility of the Bank is to keep inflation under control and ensure that inflation expectations remain well anchored."
John Loos, Household and Property Sector Strategist at FNB believes that the increase could negatively impact the residential property market in the short term in that it would further contain household sector's debt-to-disposable income ratio, as well as raising the level of bad debts slightly. He does however point out that one interest rate hike is unlikely to have a big impact.
Loos also points out that "All bets are off regarding any noticeable rise in house price growth compared to recent levels, and single-digit price growth is expected to remain a characteristic through 2014".
The hike, says Tony Clarke, MD of the Rawson Property Group , will depress house price growth to an extent where it will fall below inflation, seeing house prices growing at a negative figure in real terms. It will also break the psychological barriers that have led people to take comfort in the fact that interest rates will remain low for the time being. This new and unexpected revelation may now cause some panic and lead people to believe that this is the first of more rises to come.
"When the interest rates started going down," says Clarke, "myself and a number of other spokespeople at the Rawson Property Group made it our aim to advise property owners to keep with their higher premium payments and not fall into the trap of reducing these to lower interest levels. Those who followed this advice will not be too worried by this hike - but those who ignored this may find themselves in a bind that could have been avoided."
The rise in the interest rate is also expected to affect all of those who have recently bought homes as these will now have to be reassessed to make sure that the borrower is able to afford the new purchase. In addition to this, mortgage availability will come under more pressure as borrowing costs will now also go up which will come as a hard hit to an economy that has struggled to recover from the worst recession in modern history.
