We are living in unprecedented times, with the novel coronavirus and resulting COVID-19 disease completely upending social life as we know it. This has led to a whole new set of challenges for the already sluggish economy of South Africa. Luckily, the South African government also seems to be one of the examples of fastest-acting leadership, with clear and decisive measures announced to both try and slow the spread of the disease, as well as stimulate the economy and bring some relief to struggling South African households. One of these measures was to introduce an interest rate cut, which makes the cost of credit more affordable.
Back in January 2020, before the threat of the new coronavirus had gone global, the South African Reserve Bank’s Monetary Policy Committee (MPC) decided to drop the repo rate by 0,25%, bringing the repo rate to 6,25%. The repo rate is the rate at which the Reserve Bank lends money to commercial banks. The commercial banks use this to determine the rates at which they extend credit to the public, including home loans, thus directly affecting the ability of the general public to buy property.
Now, in light of the latest developments, the MPC has decided to drop the rate again in March as anticipated. However, where a drop of 50 bps (0,5%) was expected, they shocked many by announcing a cut of 100 bps. This effectively brings the repo rate down to only 5,25% – the lowest it has been since 2013. This means that the prime lending rate extended by commercial banks now drops to a mere 8,75%, making home loans more affordable… and thus making this the perfect time to buy property if you are in the market.
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