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How the interest rate cut will affect the property market

  • Rates cut by 0.25%

The decision by the Reserve Bank to cut rates has been welcomed as a decisive move. Not only will the cut have an impact on affordability for home buyers and offer home owners some respite in terms of their disposable income, but more importantly consumers may start to feel more confident about the direction of the economy.

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MPC interest rate decision

Jacques du Toit, Property Analyst at Absa Home Loans

 
Interest rates unchanged: 
 
Based on a number of economic and interest rate-related factors, the Reserve Bank’s Monetary Policy Committee (MPC) decided to leave the key monetary policy interest rate – the repo rate – unchanged at a level of 7% per annum at its penultimate meeting of 2016. This caused commercial banks’ prime lending base rates for extending credit to the consumer and business sectors to remain stable at 10,5% per annum. Factors that prompted the MPC in keeping the repo rate unchanged include a strengthening rand exchange rate in recent weeks, less upward pressure on inflation, a subdued economic performance in the first half of the year, continued financial pressure on households and businesses and indications of a continued relatively subdued cycle of monetary policy tightening in the US. Recent high-frequency domestic data releases (mining production, manufacturing production, retail sales, new vehicle sales and the leading business cycle indicator) point to continued poor economic growth prospects in the near term. However, macroeconomic trends and inflationary pressures will be closely monitored and further rate hikes in coming months cannot be ruled out.
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