SA rates on hold

After a long rise, it appears that for the moment interest rates in South Africa are going to stay put.

Property investors in South Africa breathed a sight of relief on Friday when the Reserve Bank of South Africa decided to take a break and put their monetary policy in stasis. This represents the first time in nine decisions that the interest rates have not gone up, as before this decision to stay put and do nothing the bank had put forward eight consecutive interest rate increases, bringing the rate up to 11%.

Property investors will appreciate the decision on the part of the bank as a lack of increase in the interest rate will allow them to obtain credit at conditions that are more favourable to them than if the bank had decided to go ahead with the ninth consecutive interest rate increase since the summer of 2006.

However, other people were highly critical of the bank's decision and cite that a lack of interest rate increase will lead to rising inflation. It is true that rising inflation was the main reason for the long streak of interest rate increases and without higher interest rates, it is quite possible that the South African economy (including the property market) will see higher than expected inflation until the next decision by the bank on interest rates.

While the interest rate freeze is definitely welcome news to people in the property investment business, at the same time it needs to be taken with a grain of salt. There is still rising inflation in the South African market and along with it prices of commodities and basic services such as electricity are starting to go through the roof. If the volatility in the market gets to the right level, it is very possible that the Reserve Bank of South Africa will choose to increase interest rates once again later on in 2008.

The bottom line is that while things remain the same for now, it is nowhere near accurate to assume that this means a change in the trend of which direction interest rates will go.

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