South Africans can look forward to four interest rates cuts of 25 basis points each by the end of 2024, according to Standard Bank chief economist Goolam Ballim’s yearly economic outlook.
The predictions come off the back of easing inflation, with the Reserve Bank targeting 3% to 6%.
Standard Bank is forecasting an inflation rate of around 5% for 2024 and believes the Reserve Bank will begin interest rate cuts by the second quarter. This would mean that the repo rate would be down from 8.25% to 7.25% by the end of the year.
"We anticipate that it will mostly be quarter point cuts," Ballim said.
RISK OF INFLATION
Reserve Bank Governor Lesetja Kganyago decided not to change the interest rate in mid-January and according to Frank Blackmore, the lead economist at KPMG SA, the bank’s reasoning was more than one-fold.
“There are serious upside risks to inflation, any combination of which could push inflation once more above the upper target of 6%. Secondly, the inflationary expectations in the market and the general public remain un-anchored at either around 5.8% for business, or 6.1%, which is far higher than the 4.5% that the Reserve Bank expects. Thirdly, specifically, fuel and food prices show a lot of volatility and have a lot of risks that may impact these two items,” Blackmore said.
The Reserve Bank has mentioned that besides monetary policy, a lot more could be done by the public sector by limiting the amount of public debt we have and increasing any energy availability, which would boost growth and be good for inflation, Blackmore added.
BOND PAYMENT
If Ballim is correct and the Reserve Bank does cut interest rates this is how it will impact your bond payment.
If you are paying off a R1 million home loan, your monthly bond repayment is currently about R10,837 a month at the current prime lending rate of 11.75%.
If the Reserve Bank were to decrease the lending rate by 25 basis points to 11.5%, then your bond payment would be R10,664.
If we get a 50 basis points cut, your bond repayment would be R10,493.
A 75 basis points cut would see your bond payment drop to R10,322 and a 100 basis points cut would mean your bond payment would be R10,152.
These calculations are based on a 20-year bond repayment plan.
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