Interest rates are back at pre-pandemic levels, after the SA Reserve Bank hiked rates by 75 basis points. This is the second time in a row that the SARB has hiked rates by 75 basis points.

The move brings the repo rate to 6,25% and the prime rate to 9,75%.

The announcement follows yesterday’s inflation numbers, showing that annual consumer inflation dipped to 7,6% in August, from the 7,8% recorded in July.

As with other Central Banks, the SARB faced runaway inflation, uncertainty over the duration of the Russia-Ukraine war and its continued curtailment of world trade, and weaker domestic and global growth.

Paul Makube, a Senior Agricultural Economist at FNB Agri-Business, says the Reserve Bank had no choice but to hike rates in line with market expectations.

”For the agriculture sector, this comes on the backdrop of declining confidence in the sector as reflected in Agbiz/IDC Agribusiness Confidence Index whose 3Q2022 outcomes showed a 7 points deterioration to 53 points. Sector challenges included elevated input costs, continued outbreaks of animal disease, war-induced disruption to global supply chains, resurgence of the use of non-tariff barriers to trade, and rising interest rates. Nonetheless, the confidence index remains above break-even point of 50 points which indicates that things may still rebound to the upside.”

The higher interest rate means the farmer faces higher debt servicing costs which may slow down expansions and sales.

This may further force marginal farmers to reduce their operations and those that have already been in a dire financial situation to potentially consider quitting.

Meanwhile, on the commercial property front, this cumulative impact of SARB interest rate hiking, accompanied by interest rate hiking globally, is believed to be having both direct and indirect “cooling” impacts on the commercial property market.

The “direct” impact on property buying demand comes from the fact that the market is highly credit-driven, and the cost of servicing debt is rising.

The “indirect” impact is happening via the weakening impact on the economy that local and global interest rate hiking is having. This constrains new business growth and existing business expansion, containing commercial tenant demand for rental space as well as commercial property buying.

The residential rental market is expected to strengthen further.

FNB Property Sector Strategist John Loos says they expect credit-dependent home buying to slow in the near term as a result of ongoing interest rate hiking, with a portion of aspirant home buyers waiting it out in the residential rental market.

This is expected to lead to further decline in residential rental vacancy rates, and a mild near term rental inflation acceleration.

For those with home loans, it will mean consumers will need to tighten their belts even further as the cost of living increases.

BetterBond’s Carl Coetzee says with careful planning and prudent budgeting, it is still possible to invest in a home.

”The current prime lending rate at 9.75% is lower than the double digits it was in 2019. It’s probably realistic to expect a period now where we will see lower transaction volumes and dipping house prices. We also anticipate a bit of a segmentation in the market, between the lower end which is dependent upon housing finance, and the upper end where housing equity and wealth play a greater role.”

He says affordability is now more important when making financial decisions.

“Work with a bond originator who can apply to more than one bank on your behalf for the most competitive interest rate and know what you can afford each month, based on your monthly household expenses. This will also help mitigate the effect of the interest rate increase.”