Hope rises with a reduced Repo Rate
Amid news reports of expected mass job losses with retail stores closing, Eskom struggling to restore the country’s electricity infrastructure and SAA selling off planes, consumers are concerned about the future of the South African economy. But all hope is not lost, as the South African Reserve Bank Monetary Policy Committee has unanimously voted today to reduce the repo rate with 25 basis points from 6,5% to 6,25%.
The repo rate is the rate at which the central bank of a country (in this case, SARB) lends money to commercial banks in the event of any shortfall of funds. The repo rate is used by monetary authorities to control inflation.
The banks will be forced to cut their prime lending rate from 10% to 9.75% which will translate into a saving of R16.50 per month per R100 000 borrowed for existing homeowners according to Johan van Zyl, Managing Director of Property.CoZa Financial Services (PFS). The South African Reserve Bank governor, Lesetji Kganyag stated that the economy’s weak 0.4% expansion in 2019 places the growth outlook for 2020 and 2021 at 1.2%, four percentage points lower than previously expected.
The drop in the repo rate, according to Investec, affects South Africans in the following ways:
- A lower repo rate makes it less expensive for banks to borrow money from the Reserve Bank, which may have a positive impact on interest charged on credit;
- it may also positively impact the price of property with greater benefits for cash buyers; and
- prime-linked loans get a bit of reprieve with a reduction in interest rates.
Van Zyl says that the rate reduction early in the year as well as the fact that banks are once again competing for business in the home loan market will definitely have a positive effect and stimulate the market. It bodes very well for 2020.