Repo rate hike unlikely to impact on listed property

Repo rate hike by the Reserve Bank is unlikely to have any impact on South Africa’s listed property sector, Grindrod Asset Management chief investment officer Ian Anderson said

Yesterday’s repo rate increase by the Reserve Bank is unlikely to have any impact on South Africa’s listed property sector, Grindrod Asset Management chief investment officer Ian Anderson said.

The Reserve Bank on Thursday increased interest rates by 25 basis points to 5.75% citing rising inflation concerns.

Reserve Bank governor Gill Marcus said the economic growth outlook had deteriorated against the backdrop of protracted strike action in the mining and manufacturing sectors.

"The economy contracted in the first quarter of 2014 and the growth outlook for the rest of the year remains subdued amid low business confidence," she said.

Reserve Bank sees GDP averaging at 1.7% in 2014 - assuming there is a speedy resolve to the Numsa metalworkers strike. This is compared with 2.1% previously and 2.8% at the beginning of the year.

Meanwhile, Grindrod Asset Management chief investment officer, Ian Anderson says the small interest rate hike will not affect longer-term funding rates and should not contribute to a further slowdown in economic activity.

"The MPC’s decision gives them some breathing room ahead of the next meeting, where interest rates are likely to be kept on hold if there are no major external shocks and if inflation expectations remain anchored, albeit at levels at the upper end of the SARB’s targeted range," he said.

Anderson says although the MPC does not have a mandate to support economic growth, it is mindful of the impact that its monetary policy decisions have on the broader economy.

Against a backdrop of slowing consumption expenditure, declining confidence, particularly in the private sector and ongoing labour unrest, the South African economy is not in a position to absorb significant interest rates hikes at present, he says.

"Interest rates are therefore expected to remain at lower levels for longer, which should lend some support to current listed property valuations and contribute to accelerating distribution growth throughout 2014 and 2015," concludes Anderson.