Interest rate announcement predictions | What to expect and how to prepare

The Monetary Policy Committee is set to meet and deliver their decision around the interest rate policy on 30 March 2023. While many hope that interest rates will remain stable, there is a greater possibility that interest rates will climb yet again at this meeting.

​Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa is hopeful that interest rates might remain stable but is also aware of the risks that could lead to yet another rate increase. "Inflation decreased for the third consecutive month down to 6,9% in January. However, this is still above the MPC's stated midpoint target range and the risks to inflation remain considerable. While I am hopeful that we might see interest rates stabilize soon, I would also caution consumers to leave room in their budgets for another 0.25 - 0.5% increase," says Goslett.

In their previous statement, MPC Governor Lesetja Kganyago stated that "[e]conomic and financial conditions are expected to remain more volatile for the foreseeable future. In this uncertain environment, monetary policy decisions will continue to be data dependent and sensitive to the balance of risks to the outlook."  

Considering that the risks to our economic circumstances have not improved since the last meeting, it seems prudent to plan for another interest rate hike. "Following every interest rate hike, there is naturally more rental enquiries and fewer queries from interested buyers. The higher interest rates get, the less active the housing market is likely to become," says Goslett.

If interest rates do climb, Goslett reminds consumers that all debts will become more expensive. "Prioritize paying off any bed debts first and try to avoid taking on any new debt in the coming months. Above all else, keep up with the repayments on your home loan. If things get too tight, act sooner rather than later. Rent out a spare room in your home to help you afford the repayments or downscale to something more affordable before things get too out of hand," he recommends.

It is difficult to predict with any certainty what interest rates will do over the course of the year, but Goslett is hopeful that interest rates will stabilize soon - if not at this meeting, then possibly later in the year - "it all depends on what happens in the global markets and how well we are able to manage the ongoing loadshedding crisis, as these are some of the most pressing concerns for inflation levels in South Africa. Once the MPC decides that these risks are under control, then it is likely that we will see interest rates stabilize again," he says.

SARB should keep the rate hike to a minimum

Meanwhile Samuel Seeff, chairman of the Seeff Property Group is of the view that the SARB should keep the interest rate hike to a minimum 25 basis points and should perhaps consider pausing the hike at this stage.

Given the concerns around the Eskom energy crisis, further weakening in business confidence and news that the economy contracted by 1.3 percent in the last quarter of 2022, we would think that the country now needs the Reserve Bank to take a more conservative approach and hold off on the rate hike.

That said, we have seen the CPI decline steadily which gives us hope that if the SARB decides that they need to hike the rate, it would be restricted to 25 basis points which is expected and already factored in by the market. Another 50bps hike would really be adding further to the challenges faced by the economy and consumers.

From a property perspective, we continue to see a good market across the board, but obviously with regional variations with some areas doing better than others. The market remains active and buying and selling continues daily.

While buyers and homeowners will now need to adjust to the higher interest rate which will not only affect their home loan repayments, but other credit as well, it is still a good time to invest in property.

The banks continue to compete for business with deposit requirements generally still below 10% and approval rates still well above 80%. Qualifying buyers can still find mortgage loans on good terms. The increased transfer duty exemption threshold to R1.1 million is also favourable for buyers.

Property price appreciation remains flat and while this means that sellers will need to keep their asking prices in line with current market conditions, the upside is that we are unlikely to see prices plummet compared to other global markets which experienced runaway price growth during the Covid-boom.

The flipside of the flat growth means that while buyers are facing higher borrowing costs, they can still find good value in the market.

Yael Geffen, CEO of Lew Geffen Sotheby's International Realty, says consumers are at breaking point, and another repo rate hike - which will probably be 25 basis points - could be the straw that breaks the camel's back.

The currency has tanked, food inflation in January hit nearly 14%, the highest since 2009, and household income simply can't keep up. Neither can the private sector that is imploding without a stable electricity supply.

The Monetary Policy Committee needs to think long and hard about this decision. The macro-economy can't be fixed by plunging the country's population into even deeper poverty.

How to prepare for an interest rate hike

South African homeowners are probably very well aware that changes to interest rates can have a significant impact on a home loan and, of course, one's overall financial wellbeing. While a challenging economy and recent interest rate hikes may have some homeowners feeling a little worried, there are measures that can be taken to reduce the impact of these increases on your wallet.

"Whether you're looking to buy, sell, or invest in property, there are plenty of opportunities in the South African property market. By taking steps to prepare for interest rate hikes, you can position yourself to weather the market changes that often come with an interest rate hike," says Goslett.

"Before we look at preparing for an interest rate hike, it is important to understand how interest rates work. In South Africa, the SARB sets the interest rates. The repurchase rate refers to the rate at which the SARB charges commercial banks for lending money.

"Commonly known as the repo rate, it affects all other interest rates in the economy, most importantly the Prime Lending Rate which is the base rate that banks offer consumers. The MPC meets six times a year to review local and international economic conditions and set the repo rate. The repo rate can change in response to inflation and other factors that affect South Africa's economic stability.

Usually, the interest rates tend to move only slightly (by roughly 25 or 50 basis points) a few times a year. It takes unusual events, such as the pandemic, to cause bigger or more frequent changes to the interest rates. Following the record low it hit during the pandemic, the SARB has since had to raise the repo rate six times in 2022 - each time it met - and raised it again in January 2023. For an indication of how interest rates have moved over time, visit the SARB website.

Because the repo rate impacts not only the interest rates on home loans but also all other debts, there are various ways one can prepare for an interest rate hike.

Watch the SARB - forewarned is forearmed

The Monetary Policy Committee follows a recurring schedule and always make their announcement at 3pm on roughly the third Thursday of every second month (i.e. January, March, May, July, September, November). "Leading up to an announcement, keep an eye on the local news. The press is full of information and predictions about interest rate changes. The experts are often right (or close enough to right) and this can give you time to prepare ahead of an announcement," Goslett recommends.

Review your budget and your debt

According to Goslett, reviewing your budget is an essential step in preparing for an interest rate hike. "Look at your income and expenses to determine how much more you can afford to pay towards your home loan each month. Knowing where you can cut back on non-essential expenses will help you cope with those extra charges if they do occur. If the news reports are warning about an interest rate hike, avoid taking on any new debts or opening any new accounts. If possible, pay off as many bad debts as possible, as all debt repayments will become more expensive if interest rates climb," he notes.

Make extra payments whenever you can

When times are good, Goslett strongly advises homeowners to keep paying extra into your home loan. "Not only will this build up equity in your loan which you can access later should you need to, but paying more than the minimum amount on your home loan will also help you pay off your loan faster and cut down on interest charges. If times do get tight and you have been diligently paying extra into your home loan every month, you could potentially approach your bank and ask to refinance the home loan based on the equity you have built-up within the account."

For those who are on the fence about buying while interest rates are climbing, Goslett notes that the decision about buying a house is personal and interest rates may just be one factor influencing that decision. "Because it's hard to predict when interest rates will increase (or drop), it's sensible to factor the possibility of an interest rate into your calculations whenever you choose to buy. Owning a home is a long-term financial commitment which means that at some stage during the loan term, a homeowner will eventually have to deal with interest rates changing. If a buyer has factored this into their calculations, then the sooner they can enter the property market, the better," says Goslett.