South Africa’s prime lending rate is currently at 7%, the lowest it has been in five decades. As the Monetary Council of the South African Reserve Bank (SARB) is set to meet at the end of March, a unanimous vote by 25 economists on Finder’s repo rate forecast report thinks the bank will continue to hold the rate.
Just over a quarter of the panel expects the rate to increase this year and 46% of panellists don’t expect high volume of mortgage approvals to continue in 2021. Their analysis also forecasts that residential property prices will increase slightly by an average of 2.2% over the next 6 months.
'Goldilocks of monetary policy'
Nedbank chief economist Nicola Weimar thinks the Bank has achieved the goldilocks of monetary policy and it’s now a matter of waiting for previously set policies to take effect.
“Hiking now would not make sense since inflation is well contained & the economy is still operating well below potential. Cutting would also not be wise as the SARB has already done enough, the actual rate is below the neutral rate.
“So Monetary Policy is stimulatory enough. It is now just a case of waiting for the policy to impact on the economy - become a stimulus rather than a cushion against tough times.”
'Declining corporate income tax pressure'
While the majority of panellists (88%) think the Bank will and should hold the rate, a small minority (12%) think the Bank should actually cut the rate.
IQBusiness chief economist Sifiso Skenjana thinks the Bank should cut the interest rate by 25 basis points.
“While we are reporting a better than expected revenue shortfall, the contribution was largely on the back of a mining earnings growth and not a stabilising economic growth context. The declining corporate income tax base is a clear sign of the economic pressure points and relief through an interest rate decrease is needed at this point in time,” he said.
Could 2022 be the year of rate hikes?
However a rate increase might not be too far off, with 28% expecting to see a rate hike this year and over half (56%) say the rate will increase next year.
Stellenbosch University chief operating officer Stan du Plessis says South Africa could depart from the low repo rate regime as soon as the tail end of 2021.
“I expect the economy to recover sufficiently by the second half of the year to require an exit from the abnormally low repo rate level. The expected rise in long term bond yields will add to the pressure on the short term of the curve,” he said.
A small minority of panellists (16%), including the Department of Economics and Finance, University of the Free State senior researcher Dr Johan Coetzee, don’t expect the rate to increase until at least 2023.
“The SARB has to ensure that it continues to support the poor economic environment facing South Africa. Lower interest rates will be part of the macroeconomic policy mix for a time yet,” he said.
High volume of mortgage approvals could be coming to an end
The trend of a high volume of mortgage approvals we saw in 2020 will likely come to an end this year, according to just under half the panel (46%).
Absa Group senior economist Peter Worthington says the volume we saw last year can be attributed to a stock adjustment. “The problem is that incomes are not there to keep this going on a long term basis,” he added.