Interest rates left unchanged in the wake of international financial sector turmoil

The Reserve Bank’s Monetary Policy Committee (MPC) decided to keep the repo rate unchanged after a two-day meeting on monetary policy. As a result commercial banks’ lending rates to the public, i.e. prime and variable mortgage interest rates, remain at a level of15,5%.

Although the CPIX inflation rate, currently at 13,6%, is still well above the upper target limit of 6%, the MPC took into account the global financial sector developments, as well as the fact that the local economy is responding to a tight monetary policy. Economic activity has slowed down over a wide front and households remain under severe financial pressure.

The Managing Executive of Absa Home Loans, Luthando Vutula, said the housing market has cooled off substantially on the back of rising interest rates between June 2006 and June this year, which had a negative impact on the affordability of housing. Factors such as surging inflation and significantly lower growth in real household disposable income have contributed to the housing market slowing down.

He also said that “the full effect of the rate hikes in the first half of 2008 are still working through to the economy and the housing market. The rising interest rates have resulted in mortgage repayments to rise by 35,6% in total over the past two years. These developments, together with the impact of the National Credit Act, are weighing on household finances and have caused the property market to experience relatively low levels of activity and price growth in recent times.”

In view of consumers experiencing financial difficulties as a result of the current economic cycle, Vutula again encourages existing and prospective homeowners to contact their bank to ascertain themselves of the various options available with regard to a mortgage loan. Absa has also launched a debt repair line to help customers who are experiencing debt affordability problems.

Vutula also urges households to make an effort of living within their financial means by keeping to a budget of income and expenses, differentiating between essentials en luxuries, limiting any further debt, paying cash for purchases, and having specific saving goals.

“Although interest rates are currently moving sideways, with expectations of rate cuts next year, many households will probably continue to experience financial strain during the next 12 months.”