Interest rates remain unchanged: Is this a sign of a looming rates hike?

Low interest rates and affordable house prices were reportedly the drivers of residential property-buying in 2020.

Estate agents seem to think this is likely to continue into 2021, as long as interest rates remain low, giving buyers room to breathe.

How long can interest rates remain low?

The Reserve Bank Monetary Policy Committee decided to leave interest rates unchanged at 3.5% per annum on 21 January 2021. Currently, the prime lending rate is 7% per annum.

Samuel Seeff, chairman of the Seeff Property Group, says the decision to leave rates unchanged is disappointing for the economy and for the property market.

“We have seen what 2020’s rate cuts did for the economy and property market with better than expected results during the second half of 2020.”

He says the risk of the Reserve Bank not taking the opportunity to provide a stimulus, is that the economic impact on employment and household finances could start eating into the gains made in 2020.

“While we have not seen the anticipated levels of distressed sales, the longer the Covid pandemic lingers, the higher the risk.”

FNB believes there is room for further interest rate cut. easing. The bank says that the current economic shock has kept demand activity in the economy very low, resulting in inflation remaining firmly anchored below the midpoint of the target band.

A further rate cut will help businesses and households that are currently under financial stress.

According to Dr Andrew Golding, chief executive of the Pam Golding Property group, the Reserve Bank erred on the side of caution in holding interest rates steady.

“There is certainly a compelling case for a further reduction, which would provide relief to financially distressed households and businesses.”

Dr Golding says that instead of cutting rates, the Reserve Bank may choose to keep interest rates lower for longer. This would be facilitated by inflation remaining below the midpoint of the Reserve Bank’s 3% to 6% inflation target.

Myles Wakefield, Wakefields Real Estate CEO, says low interest rates are supportive of the property market. However, they can remain low to a certain point before they increase later this year (2021).

“It’s interest rates versus the economy, and it’s important that the economy rebounds as fast as possible,” he adds.

Edited by fellow-Safrean Gudrun Kaiser.