Interest rates to remain the same in 2014

The Reserve Bank Monetary Policy Committee (MPC) held their final MPC meeting for the year on Thursday, 21 November 2013. In a unanimous decision, the South African Reserve Bank has kept the interest rate unchanged at 5%.

Annabel Bishop, who is the Chief Economist at Investec forecasted this decision. In earlier statements, she said that the repo rate will remain unchanged even in this current economic climate.

The Rand and the bond yields market remain influenced largely by Federal Open Market Committee (FOMC) communications and US data releases. This is because foreigners hold a third of SA’s Rand denominated bonds and yields have increased throughout the 10 year government bond which is now recorded at 7.70 percent in SA. It was at 6.74 percent last year.

The Rand has strengthened in the last week to R10.10 against the US dollar, R13,64 against the Euro. However, even though some expect a hike in interest rates, the economy continues to be slow and is performing below its potential rate.  It is based on this that Bishop made the presupposition that interest rates will not increase especially while economic growth is so low.

Adrian Goslett, CEO of RE/MAX of South Africa said; “It is quite likely that we will start seeing the interest rate increase during 2014, which will put slightly more pressure on those with already high-debt-to-income ratios. Consumers have enjoyed a remarkably low interest rate for the past few years with the prime interest rate dropping by a staggering 5.5% since the property boom, which has opened up several opportunities to buyers who were previously unable to afford property. Aspiring homeowners that have waited it out before taking the opportunities presented in the current market may soon find themselves missing out if they do not act now.”