1. 1
18 November 2010
Compiled by:
Jacques du Toit
Senior Property Analyst
Absa Home Loans
Absa Group Limited
(Reg No 1986/003934/06)
45 Mooi Street
Johannesburg
2001
PO Box 7735
Johannesburg
2000
South Africa
Tel: +27 (0) 11 350 7246
E-mail: jacques@absa.co.za
Website: http://www.absa.co.za
The information in this publication is
derived from sources which are
regarded as accurate and reliable, is of
a general nature only, does not
constitute advice and may not be
applicable to all circumstances. Detailed
advice should be obtained in individual
cases. No responsibility for any error,
omission or loss sustained by any
person acting or refraining from acting
as a result of this publication is accepted
by Absa Group Limited and/or the
authors of the material.
Interest rates cut by a further 50 basis points to their
lowest level since the early 1970s
The South African Reserve Bank’s Monetary Policy Committee (MPC) lowered the
key monetary policy interest rate – the repo rate – by another 50 basis points to
5,5%. On the back of this latest cut in the repo rate, Absa announced that its lending
rates to the public, i.e. prime and variable mortgage rates, will decline by the same
magnitude to a level of 9%, effective from 19 November 2010.
Interest rates have been cut by a cumulative 650 basis points since December 2008,
which brings the mortgage rate to its lowest level since December 1973, while the
prime rate is back to a level last seen in May 1974. On the back of the further drop in
the mortgage rate, monthly repayments on mortgage loans will in general be 33,5%
lower compared with early December 2008 when the mortgage rate was still at a
level of 15,5%.
The further cut in interest rates came on the back of recent developments in respect
of the domestic economy. Year-on-year growth in manufacturing production tapered
off to only 1,4% in September; employment remained under pressure up to the third
quarter of the year; and the Reserve Bank’s leading business cycle indicator moved
largely sideways in the past few months up to August, suggesting that the
performance of the economy could remain around current levels towards the end of
the year and into early 2011.
Consumers continue to experience some financial pressure in the wake of still high
levels of debt in relation to disposable income, job losses and relatively tight credit
conditions. Growth in credit extension to the household sector improved during the
course of the year after bottoming in late 2009, but is still well below the 10% level on
an annual basis. Consumer confidence was largely unchanged in 2010, while
business confidence came under further pressure in October.
Consumer price inflation, at 3,2% year-on-year in September, is at its lowest level
since December 2005. This was to some extent the result of continued rand strength
on the back of a weak US dollar, while food price inflation remains benign. The CPI
inflation rate is forecast to remain low in the rest of the year and is expected to rise
only gradually during 2011.
The direction of interest rates in 2011 will to a large extent depend on economic
developments and consequent movements in key economic indicators, such as
consumer price inflation, during the course of the year.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
CPI inflation rate (y/y %) 6.2 5.7 5.1 4.8 4.6 4.2 3.7 3.5 3.2 - -
Repo rate (%) 7.0 7.0 6.5 6.5 6.5 6.5 6.5 6.5 6.0 6.0 5.5
Prime interest rate (%) 10.5 10.5 10.0 10.0 10.0 10.0 10.0 10.0 9.5 9.5 9.0
Mortgage interest rate (%) 10.5 10.5 10.0 10.0 10.0 10.0 10.0 10.0 9.5 9.5 9.0
Sources: SARB, Stats SA
Inflation and Interest Rates in 2010

2. 2
Loan Reduction in Cumulative
amount 9.0% 9.5% 15.5% repayment reduction in
9.5%-9.0% repayment1
15.5%-9.0%
R 50 000 R 450 R 466 R 677 R 16 R 227
R 100 000 R 900 R 932 R 1 354 R 32 R 454
R 200 000 R 1 799 R 1 864 R 2 708 R 65 R 908
R 300 000 R 2 699 R 2 796 R 4 062 R 97 R 1 362
R 400 000 R 3 599 R 3 729 R 5 416 R 130 R 1 817
R 500 000 R 4 499 R 4 661 R 6 769 R 162 R 2 271
R 600 000 R 5 398 R 5 593 R 8 123 R 194 R 2 725
R 700 000 R 6 298 R 6 525 R 9 477 R 227 R 3 179
R 800 000 R 7 198 R 7 457 R 10 831 R 259 R 3 633
R 900 000 R 8 098 R 8 389 R 12 185 R 292 R 4 087
R 1 000 000 R 8 997 R 9 321 R 13 539 R 324 R 4 542
R 1 500 000 R 13 496 R 13 982 R 20 308 R 486 R 6 812
R 2 000 000 R 17 995 R 18 643 R 27 078 R 648 R 9 083
R 2 500 000 R 22 493 R 23 303 R 33 847 R 810 R 11 354
R 3 000 000 R 26 992 R 27 964 R 40 616 R 972 R 13 625
R 3 500 000 R 31 490 R 32 625 R 47 386 R 1 134 R 15 895
1
Since December 2008
Monthly Mortgage Repayment
(calculated over a period of 20 years)
Repayment at a mortgage rate of
2
3
4
5
6
7
8
9
10
11
12
13
14
02 03 04 05 06 07 08 09 10
%
Source: Stats SA
Targeted Inflation*
*CPIX for metropolitan and other urban areas up to end-2008;
CPI for all urban areas from January 2009
5
7
9
11
13
15
17
19
02 03 04 05 06 07 08 09 10
%
Source: SARB
Interest Rates
Monthly data
Repo rate Prime/mortgage rate