INTEREST RATE HIKE - SMALL AND SLOW

Expected by some, not by others, Central Bank Governer Lesetja Kganyago announced a 0,25 basis point increase to the repo rate. After slashing interest rates to historical lows following the onset of Covid 19, The Reserve Bank's monetary policy committee (MPC) voted by a tight margin to raise the rate to 3.75%, citing inflation risk as an important factor.

Myles Wakefield, CEO of Wakefields Real Estate, says, "We're coming off a very low interest rate from which we've benefited, and the rate is still very low. Of course nobody wants an increase in our home loan repayments, but if this is the start of an upward trajectory, far rather the rate increases are low and slow. That pill is far easier for homeowners to swallow, as it allows time to examine and adjust budgets to accommodate this."

Clearly expected, FNB's Economics Weekly calls it 'the inevitable interest rate hiking cycle has begun:  "Domestic growth for 2021 was revised slightly lower, reflecting a larger-than-expected impact of the July unrest and factors such as load-shedding, but still shows a solid rebound from last year's contraction. Growth is currently expected at 5.2% for 2021 - down from a previous forecast of 5,3 percent - and growth is forecast to average 1.8% between 2022 and 2024."

Global inflation is a major driver of the interest rate hike - bottom line, interest rates are going up worldwide. The MPC statement indicated that, since it met in September, the rand has depreciated about 5,9 percent against the dollar and now sits below the equilibrium level.

A number of analysts feel it was the right decision to begin the raise early. They expressed concern that if more risks materialised in the months ahead, the Reserve Bank might then have had to act more aggressively, which would have a more negative impact on growth.

"A small increase in the home loan rate is manageable for most homeowners," says Wakefield, "It's a good time to examine your budget, and certainly resist the temptation to overspend or use credit this festive season. Globally, everybody is in for a belt-tightening time - save for the important expenses."

He added, "This small increase is unlikely to impact significantly on property sales. As has been the case for some time now, we urge sellers to lean on the market-related knowledge of their real estate consultants, to ensure that their pricing is realistic, thereby enabling you to achieve a sale close to your asking price in the expected timeframe. 

"A small, steady increase is a far better and more manageable option, so from a home loan perspective, the MPC has made the better decision."