Lowest interest rate in 31 years

The 50 basis point (0,5%) interest rate cut announced in today’s Monetary Policy Committee (MPC) meeting was widely expected by leading economists, and enthusiastically welcomed by consumers as well as the property industry.

A number of economic indicators are currently favourable - such as GDP growth in Q2 2010 at 3.2%, consumer price inflation (CPI) well within target and expected to remain so into 2012, and strong rand exchange rate movements. Nevertheless, certain domestic economic indicators are pointing to a slowing economy, including the purchasing managers index (PMI), business and consumer confidence, and the Reserve Bank’s leading business cycle indicator. It is against this background that the Reserve Bank cut the repo rate by another 50 basis points to 6%, which will see commercial banks’ adjusting their lending rates to the public, i.e. prime and variable mortgage rates, from 10% to a new record low of 9,5%. This is the lowest the interest rate has been in 31 years - the interest rate last stood at 9,5% in August 1979.

Consumers still struggling to cope with the impact of the recent economic conditions will welcome this additional relief for their budgets.

The interest rate cut can also be expected to provide a welcome boost to the property market by improving affordability for many home buyers – currently one of the major constraints to a robust recovery in the property market.

Despite expectations of another interest rate cut later this year, we believe that this will be the last rate cut announced for some time, and that interest rates will be increased again from early 2011. Consumers entering into longer term credit agreements, particularly mortgage bonds, should factor the interest rate increases which are likely to be announced next year into their budgets before making a commitment.

Article by: www.remax.co.za