The decision by the Reserve Bank's Monetary Policy Committee to cut the repo rate by 25 basis points to 6.25% (from 6.5%), reducing the mortgage rate to 9.75% (from 10%) is welcomed, but we need more.
The Reserve Bank’s stance has been too conservative over the last year at the expense of the economy and property market. Consequently, it missed at least two, possibly three, opportunities to cut the rate given that inflation has remained well within the target range for most of last year while the currency remained reasonably stable, and in fact improved.
The sentiment boost of a rate cut should not be underestimated. South Africa’s interest rate is higher relative to the rest of the world and out of step with the economy which is struggling while consumer and investor confidence is at record-low levels. We have been in a holding pattern for about eighteen months and it is time for decisive action from the Reserve Bank to take responsibility and provide support for the economy.
We need to see at least a further 50-100 basis points cut from the interest rate during the first half of 2020 to restore confidence and provide vital impetus for the economy. Consumers are under enormous pressure and a rate cut will put some money back into household budgets and boost important economic sectors including retail and housing.
Market remains lacklustre
While the property market has continued ticking over, carried largely by the low to mid-market residential sector, it remains lacklustre. Save for the odd high-value sale, the overall sense is that sales volumes remain muted as a lack of confidence continues to hold buyers back.
The Seeff group believes that there is a strong desire to invest in the property market and we anticipate an increase in demand this year but, without a push, volumes are likely to continue primarily in the low to mid-market price bands to around R1.8m (R3m in some areas).
The challenge of a slow market is that buyers are struggling to sell their homes in many areas, which affects their ability to buy and move up. Volumes, therefore, remain under pressure despite the favourable buying conditions which are now boosted further by a degree of seller fatigue and a readiness to negotiate and sell.
For the economy and property market to start moving meaningfully, it needs a decisive stance and push which in large part needs to come from the Reserve Bank. We simply can no longer afford this “wait and watch” stance.