Standard Bank & FNB upbeat commentary about interest rate cuts
Pretoria - The South African Reserve Bank (SARB) has announced its decision to lower its repo rate by 0.25 in alignment with a number of banks' outlook and anticipation.
The First National Bank said this rate cut aligns with its outlook of a 0.25 cut at each of the next three Monetary Policy Committee (MPC) meetings, which could bring the repo rate to 7% by mid-2025. Consequently, FNB has confirmed that it will reduce its rate on its prime-linked accounts with effect from Friday 31 January 2025.
FNB CEO Harry Kellan says, "Today's rate cut is certain to further lift business prospects in the upcoming months as consumer and business confidence rise. While we noted a modest inflation uptick at the end of 2024, projections for the year ahead indicate declining inflation expectations. According to our FNB Economics insights, the inflation forecast is set to remain below 4.0% through the first half of 2025. This creates further opportunities for rate cuts at future MPC meetings.
"The Reserve Bank took a courageous step to lower interest rates at a time when the world is closely watching for policy shifts by the new government in the United States (US). Projections for South Africa's GDP growth in 2025 remain just below 2%, which is still not ideal for the South African economy with a relatively young and growing population seeking employment opportunities. With the prospect of lower interest rates in future, there is greater potential for growth to exceed current expectations. We remain optimistic that the economy will continue to gather momentum," Kellan further highlights.
FNB Chief Economist Mamello Matikinca-Ngwenya says, "Today's 25 basis point interest rate cut comes as expected. Inflation has continued to surprise analysts to the downside, remaining at the bottom of the inflation target band, and these levels are expected to be maintained until the second half of 2025 when positive base effects fade and domestic demand improves. We anticipate that a lift in inflation in the latter part of the year will dampen policy space and the scope for a more extensive interest rate cutting cycle."
The Standard Bank Group also welcomed the cut, stating that these cuts will assist customer affordability, while also strenthening South Africa's property market. The bank said that this cut could mark a turning point for South Africa's residential property market as the move has effectively brought down the prime lending rate to 11%. This is the third rate cut since September 2024, and the first time the prime lending rate has been at this level since May 2023.
Toni Anderson, Head of Home Services at Standard Bank said: "The two rate cuts introduced at the end of 2024 appear to have already sparked some recovery in residential property activity. Standard Bank observed a notable increase in home loan applications between Q3 and Q4 2024, reflecting improving buyer sentiment. This, combined with better economic outlooks, has encouraged sellers to price properties more competitively and motivated buyers to take action in select regions.
"For example, Johannesburg's housing market, which endured price declines throughout 2023, is showing signs of stabilisation. The combination of easing consumer inflation and the latest rate cut – with an additional 25 basis points reduction anticipated in March – could drive real-term house price growth in 2025. With affordability improving, this cut is expected to create a more favourable borrowing environment, providing buyers and sellers an opportunity to lock in benefits before rates stabilise."
Thabani Ndwandwe, Standard Bank's Chief Risk Officer also concedes that this rate cut will certainly make a huge difference and it is a great outcome for the consumer. "This is the third rate cut since September of 2024 making it a total of 0.75 basis points. This actually is a meaningful difference, especially for those consumers with vehicle finance and mortgages. For example a consumer with a mortgage of about a million Rand could be looking at R200 in savings, meaning that it could be about R600 cummulatively.
"This rate cut, cummulatively, and in total for all morgatges in South Africa, brings the consumers a savings of about R6 billion, which is quite substantial and should be meaningfull for the South African market. However, we remain aware of the impending risks that include the Rand volatility as well as other issues like fuel increases in the horizon".
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