The prime interest rate and the variable mortgage interest rate are expected to reach 12,5% by year-end which means that house prices are likely to increase by around 12% year-on-year in nominal terms this year, according to banking group Absa.
CPIX inflation increased in the second quarter of the year on the back of a weaker rand exchange rate, an international oil price that remained above the $70/barrel level and higher food price inflation. According to Absa, CPIX inflation is projected to rise further to about 6% by year-end.
Added to this, the deficit on the current account of the balance of payments increased substantially to 6,4% of GDP in the first quarter of 2006, which contributed to the rand depreciating significantly against the major international currencies. Year-on-year private sector credit extension remained high, with mortgage advances growth still at around 30% compared with a year ago.
“Against this background, interest rates are forecast to rise further during the rest of the year after rates were hiked by 50 basis points in June. A 50 basis points increase is expected at each of the remaining Monetary Policy Committee meetings in August, October and December this year. This will bring the prime interest rate and the variable mortgage interest rate to 12,5% at year-end. As a result of these expectations, house prices are projected to increase by around 12% y/y in nominal terms this year,” the banking group said on Monday. – I-Net Bridge