Absa – Interest rates unchanged in 2006

Lower international oil prices and a stronger rand exchange rate during the fourth quarter of 2005 caused domestic fuel prices to decline in recent times. These developments kept CPIX inflation well under control towards the end of last year.

Against this background, Absa expects the Reserve Bank to leave interest rates unchanged in 2006. “However,” the bank adds in its Residential Property Prospective for the first quarter of 2006 released in Johannesburg this week, if inflationary conditions remain favourable, it is possible that interest rates may even drop somewhat further during the course of 2006.

Against this background, the current declining trend in both nominal and real house price growth is forecast to continue in 2006. Lower nominal growth in house prices of between 10% and 12% is projected for this year compared with 2005. This lower price growth will mainly be driven by the combined effect of the affordability of housing, especially for first-time and low- to middle-income buyers, and interest rates, which are expected to remain low over the next twelve months.
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