NEWSLETTER BY PROPERTY24
Breaking News! The SARB's Monetary Policy Committee has unanimously decided to reduce the policy rate by 25 basis points to 8% per annum, resulting in a new prime rate of 11.50%
In discussing the stance, MPC members considered an unchanged stance, a 25-basis point cut, and a 50-basis point cut. The MPC ultimately reached consensus on 25 basis points, agreeing that a less restrictive stance was consistent with sustainably lower inflation over the medium term". - Governor of the South African Reserve Bank, Lesetja Kganyago
Governor of the South African Reserve Bank, Lesetja Kganyago, said in his announcement today: "As we move towards the end of the year, global inflation is slowing and nearing targets. Given these gains, major central banks have lowered rates. We saw the European Central Bank cut again last week, the Bank of England eased in August, and the US Federal Reserve reduced rates last night. The US dollar has also cooled off in recent months, providing some respite for other currencies, including the rand.
"Despite these welcome developments, central banks are moving carefully, and policy stances remain relatively tight. Economic activity in major economies has been resilient, even as inflation eases. Underlying measures of inflation have also fallen less than headline, primarily because of elevated housing inflation, and robust wage growth".
Economic performance:
Turning to South Africa, Kganyago said output was marginally below our expectations for the first half of the year. We expect improvements in the second half, with growth of 0.6% in both quarters. This reflects rising confidence, in part due to a stable electricity supply. We also expect extra spending given withdrawals from the new Two-Pot retirement system, although some of these funds will be absorbed by debt repayments and tax.
For the medium term, our growth projections have once again edged higher. The upgraded forecast is premised on better-functioning network industries, especially electricity, alongside broader reform momentum. Because potential growth is higher, in the forecast, supply and demand remain broadly balanced, even as growth accelerates. The pace of growth nonetheless remains below longer-run averages, of around 2%.
Inflation outlook:
Moving to inflation, headline eased to 4.4% in August, a 3-year low, and close to the middle of our target range. Our forecast suggests this progress will be sustained, with inflation contained below the 4.5% midpoint of our range through to the end of the forecast horizon, in 2026.
In the near term, we continue to see a dip in headline inflation, supported by the stronger exchange rate and lower oil prices. The implied starting point of the rand is R18.04 to the US dollar, an appreciation of nearly 2% relative to our July assumption. This contributes to fuel price deflation, which helps keep headline below 4% through the first half of next year. As usual, we will look through this near-term supply shock, focusing on the medium-term outlook.
Lower headline inflation also reflects a better food price outlook, with inflation for this category below the midpoint through 2025 and 2026. However, these benefits are partly offset by higher electricity prices, with an expected inflation rate more than double that of headline. For core inflation, we expect the trajectory to be slightly below 4.5% over the medium term. Again, this is primarily due to the exchange rate, which affects core mainly through import prices.
Services inflation, meanwhile, is expected to stabilise near the midpoint early next year, after a stretch of prints above 4.5%. This partly reflects subdued housing inflation, which has accelerated less than expected this year. Lower inflation expectations also contribute to the improved services outlook. According to the latest survey, these expectations are still in the top half of the target range, at 4.8% for both 2025 and 2026. They are nonetheless moving – slowly – in the right direction. As long as headline inflation stabilises at lower levels, we anticipate further progress in re-anchoring expectations around the middle of our target range.
The risks to inflation are assessed as balanced. Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points, to 8% per annum, with effect from 20 September.
Homeowners: How the interest rate cut affects your financial planning:
With the interest rate drop of 0.25 points, it’s crucial to understand how this adjustment will impact your finances for better financial planning in the future.
To help you navigate this change, Property24 has introduced an Additional Once-Off Payment feature in the additional payments calculator tool, allowing you to understand how the rate cut can benefit your financial circumstances.
To access this feature, simply navigate to the Property24 Additional Payments Calculator under the Calculators tab.
This additional feature is designed to help you estimate the financial impact of the rate change on your existing bond. By entering your current bond debt amount, current bond repayment, additional monthly payment, once-off payment, and interest rate details, you can assess how your payments and overall costs are affected.
