Interest Rate Update (The Bugle)

Last week, on 23^rd May 2013, The SA Reserve Bank monetary policy committee (MPC) meeting decided to leave the benchmark repo rate (the rate at which the commercial banks lend money from the Reserve Bank) unchanged at 5%. This ensures that the prime overdraft rate will remain unchanged at 8,5%. It is almost a year ago (on 19^th July 2012) that this rate declined from 9% to its current level, which believe it or not is the lowest level since Nov. 1973 – 40 years! That is a working lifetime for most of us. 

An excellent resource is the Reserve Bank’s website, and if you read the press release provided by Gill Marcus, the SARB Governor, this provides a comprehensive insight into the factors that influence the MPC’s decisions. The key points made are that the domestic and international economic outlooks remain fragile, our local labour relations environment is impacting negatively on investor confidence, and economic GDP growth prospects have been reduced to 2,4% for this year and 3,5% for 2014. The CPI inflation forecasts are lower however (good news) at 5,8% for this year and 5,2% for 2014. If you have noticed more South African’s planning on moving back to South Africa from Europe, this is not surprising as the Eurozone remains in recession. The French economy recorded two consecutive quarters of negative growth (the widely used definition of a recession) and the German economy managed to avoid recession by recording annualized growth of 0,3% (only just) in the first quarter of 2013. Far more positive news has come out of the US with a booming equity market and recovering housing market. Global inflation has moderated given the slower global growth and weaker commodity prices, especially the price of energy in the advanced economies. The amazing discovery of the technology of extracting natural shale gas resources in North America, which is being mined through a process called “fracking”, is propelling the US to energy self-sufficiency. Commentators are calling it a “Gas Bonanza”. Not without its critics on environmental grounds, the availability of cheap natural gas to the US economy could be incredible. The discovery of the large natural gas resources off northern Mozambique could become a significant supply of cheaper natural gas to SA and an employment opportunity to engineers and project managers, some of whom I know personally and already own property in Zimbali.

For property owners we can expect our mortgage rates to remain flat for the foreseeable future. The greater Ballito area, with its extraordinary quality of life and superb gated estates is attracting the attention of wealthy individuals from inside South Africa as well a north of our borders.

(Author: Andreas Wassenaar, published in The Bugle, 29 May 2013)