Repo rate drops to 30-year low
Households got good news yesterday when benchmark prime and mortgage rates fell a half percentage point to 9.5 percent - the lowest level since 1979. The rate was last cut in March but was kept on hold at the May and July meetings of the Reserve Bank's monetary policy committee (MPC).
Announcing the decision, Reserve Bank governor Gill Marcus said inflation had surprised on the downside since the last MPC meeting. In July the MPC predicted that inflation would trough at 4.5 percent in the third quarter, but yesterday it forecast a low point of 3.7 percent.
Rand strength was an important factor. Marcus said the currency had appreciated by 4 percent since the July meeting. A strong rand caps inflation because it moderates imported prices, which forces local producers to compete by keeping prices in line.
Lower inflation and lower interest rates should provide breathing space for consumers. Yesterday's decision will reduce interest rate costs in the months ahead.
On a mortgage loan worth R800 000, monthly repayments will fall R263 to R7 457.
Since the peak of the interest rate cycle late in 2008, when the two key rates were 15 percent, there has been a cumulative reduction of 6 percentage points, which has reduced monthly repayments on an R800 000 loan by more than 30 percent from R10 831.
The benefits are spread across most forms of credit. Absa managing executive Sydney Soundy said a customer paying off a vehicle loan of R100 000 over 60 months could expect to save R25 a month and pay R300 less in premiums a year.
The proportion of income households have to pay in interests costs is sharply down since December, 2008. However, households remain heavily indebted.
In the first quarter, household debt it was at 78.4 percent of disposable household income. While this is down from the peak of 83.4 percent in the first quarter of 2008 it is still way up on its historical levels. Eight years ago it was below 50 percent.
Pretoria News
Posted at 09:55AM Sep 10, 2010 by Editor in Home Loans |