This, says Johh Loos, Property Strategist at FNB in his comments on the cut, “this more significant one percentage point cut is reflective of the poor state of the global economy, which has led to a sharp commodity price decline, and in turn caused the CPIX inflation rate to start declining steadily” From a peak of 13,6% year-on-year in August, CPIX inflation had dropped by 3,3 percentage points to 10,3% by December, and the new re-weighted CPI for January is widely expected to show further significant decline. 

From an inflation point of view, therefore, Loos says, the more aggressive interest rate reduction could be justified by the SARB, while from the interest rate-sensitive property market’s point of view it provides some welcome relief. 

The cut implies a decline in a prime rate instalment repayment (monthly compounded) of R366 per month on a R500 000 20-year bond, and R732 reduction on a R1m, bond. This is where the cumulative effect of interest rate cutting starts to become significant, with a R1,103 cumulative reduction in the monthly payment on a R1m prime rate bond. 

The Firstrand expectation is for interest rates to decline to 12% prime in the current cycle, with risks to the forecast more to the downside.