The South African Reserve Bank should cut the repo rate by a full 100 basis points when its Monetary Policy Committee meets in February, JSE-listed Colliers International said on Wednesday.
”If the Reserve Bank were to cut the interest rates by 100 basis points when it meets [in February], it would have the effect of stimulating the market for home buyers.
”It would represent the best news in years for home buyers,” said Brian Falconer, MD of the company’s residential division.
If the Reserve Bank did cut interest rates by 100 basis points in February, it would mean a drop of about R1 000 per month in bond repayments per million rand of bonds held, Falconer said.
The committee meeting was scheduled for February 11 and 12, but on Tuesday the bank said in a statement that it had been moved to February 4 and 5.
”The change was necessitated by the fact that the Budget Speech by the minister of finance will be presented in Parliament on February 11,” the statement said.
The repo rate, the rate at which the Reserve Bank lends money to commercial banks, peaked at 12 percent in August before finally being cut by 50 basis points in December.
It is now 11,5 percent, with prime at 15 percent.
”The near halving of the petrol price and the sharp drop in inflation, except for food inflation, have given the bank all the reasons it needs to make meaningful inroads into the interest rate,” Falconer said.
”Other countries in developing markets, such as Australia and Thailand, have been aggressive in cutting interest rates, and right now it would be the best possible move for the local economy.”
Falconer said that a cut would also slow down the destructive cycle of bank repossessions and encourage more people to enter the property market.
”By the end of last year, about five percent of homeowners were in a negative equity position, and about 130Â 000 homeowners were in significant trouble with their bonds.
”For each 50-basis point cut, people’s mortgage stress will ease,” Falconer said.
Many economists were forecasting cuts totalling 250 to 300 basis points during the course of 2009.
”As interest rates decline, so banks should also begin to loosen their credit purse strings: currently banks are requiring up to 20 percent deposits before granting a bond, which prices many people out of the market.”
Overall, the residential property market was on its way to a slow recovery, Falconer said.
”After a difficult 2008, home sellers, home buyers and estate agents have more to look forward to.
”All indications are that the market is bottoming out, and we are on the way back to something resembling normality.” – Sapa