Homeowners optimistic about repo rate cut, but SARB expected to maintain current rates

While homeowners would be glad to welcome another repo rate cut, more economic experts expect the repo rate to hold steady at 7% after the South African Reserve Bank meets next week. 

Despite inflation remaining within the target range of 3% to 6%, the recent slide up to 3.5% - its highest level in 10 months-suggests that a further interest rate cut at this time is unlikely, says Bradd Bendall, the national head of sales at BetterBond.

“If the Reserve Bank is intent on shifting the inflation target closer to 3%, maintaining the prime lending rate at 10.5% will be necessary for now. 

“Stability supports the long-term goal of reducing production costs, stimulating consumer demand and driving renewed economic growth. There are already encouraging signs that we are on track. Absa’s latest Quarterly Perspectives report points to a 0.3% quarter-on-quarter GDP increase, with growth expected to reach 1.6% next year,” Bendall said.  

The home loans and financial services partner said the property market continues to demonstrate remarkable resilience. It said that the five interest rate cuts since September last year have helped stabilise conditions.

According to its data, home loan applications went up 12% year-on-year in July, the highest level since late 2022.

House prices have also strengthened, increasing 2.1% year-on-year, while the average price for first-time buyers hit a new high of R1.3 million. “Both increases outpaced inflation, reflecting continued demand, particularly in provinces such as the Western Cape,” Betterbond says. 

Next week, the US Federal Reserve could ease its own rates while the SARB holds, creating a policy gap that could give the rand real lift, says Johann Els, the chief economist at the Old Mutual Group.

“The Fed is likely to cut rates on 17 Sept (25bp baseline; 50bp possible). Focus has shifted from inflation to slowing growth and labour market weakness.

"On the other hand, the SARB is expected to hold rates on 18 Sept, reflecting its effective 3% inflation target. No cuts likely before 2027, but also no hikes. The implications of these diverging policy paths with the Fed easing vs SARB on hold should lend support to the rand, with upside potential if the Fed surprises with a larger cut,” Els says. 

He added that the Fed’s focus has shifted toward supporting the real economy.

“Inflation remains above the 2% target and somewhat sticky, but the labour market has slowed markedly in recent months. While employment is still growing, the pace has moderated significantly since the start of the year, pointing to potential weakness in household incomes and spending ahead.”

According to Els, the Conference Board’s leading indicator has been declining for over 40 months, underscoring downside growth risks.

“Policy uncertainty is also weighing on business and consumer confidence. These dynamics will temper tariff-related price pressures and create room for monetary easing. At the July FOMC meeting, two members already voted for a cut.

"I expect the Fed to deliver a 25bp rate cut next week, followed by a series of similar cuts over the next 4–5 meetings. However, there is a material probability - close to 50% - of a 50bp move at this meeting. While such a cut would not be a major surprise, a 75bp or 100bp cut would shock markets and trigger a sharp USD reaction.” 

Coming to South Africa, the chief economist said domestic inflationary conditions have improved modestly since the July MPC meeting, although the overall economy remains weak.

He said the second-quarter GDP growth was firmer than in the first quarter, maintaining that the first-half growth was still subdued.

Under a 4.5% midpoint inflation target, Els says this environment might have supported a cut. However, the SARB’s current de facto focus on the lower bound of its 3-6% range (3%) effectively rules this out.

“I therefore expect the MPC to keep rates unchanged next week-and likely through to 2027, when a new cutting cycle may begin. Importantly, this stance should also mean no hikes over the period. Some market participants are pricing in a cut next week, but this looks unlikely.

"In addition, the SARB’s inflation assumptions have been on the optimistic side-for example, they will need to adjust for NERSA’s recent upward revision of electricity tariffs,” Els said. 

He said the result of these moves should see the rand exchange rate gaining some ground- perhaps a lot of ground, depending on the size of the US rate cut.

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