Repo Rate remains unchanged: What it means for the economy and the construction sector

BUSINESS NEWS - The South African Reserve Bank (SARB) has been gradually easing monetary policy, trimming the repo rate from 8.25% in September 2024 through a series of cuts to 7.00% as of 1 August, with the prime lending rate now at 10.50%.

These rate reductions have helped reduce borrowing costs somewhat, eased pressure on credit-dependent sectors, and provided support in a weak growth environment.

However, the persistence of a 0.3% decline in construction and the modest 0.8% GDP growth in Q2 show that monetary easing alone may not be enough to fully stimulate investment or reverse sectoral contractions.

“The SARB opting to keep the repo rate steady was the most likely outcome of the Monetary Policy Committee (MPC) meeting today, given SARB’s traditionally cautious approach,” says Shawn Theunissen, Founder of Property Point and Entrepreneurship to the Point. “This reflects a balance between protecting the growth outlook and safeguarding against inflationary pressures.”

This decision looks set to ensure stability in the South African economy, which reinforces SARB’s credibility but it offers little immediate relief to struggling businesses and households. Growth would likely remain sluggish, but predictability in monetary policy would help planning.

With no immediate financing relief, the construction sector would continue grappling with high input costs, slow project rollouts, and competitive pressures from imports.

However, stability in the rate may reduce uncertainty for investors considering long-term infrastructure or property developments.

While businesses in the SME sector would not benefit from cheaper credit, they could plan with greater certainty, which is often just as critical in fragile markets.

While repo rate adjustments can influence borrowing costs and economic momentum, they are not a silver bullet.

The 0.3% decline in construction highlights structural challenges that extend beyond monetary policy: underinvestment in public infrastructure, slow tender processes, high operating costs, and an uneven competitive landscape.

Similarly, modest GDP growth of 0.8% underlines the need for broader reforms to unlock productivity, boost demand, and support sectors with high employment potential.

Monetary easing may provide temporary relief, but structural reforms, infrastructure investment, and targeted support for SMEs will be critical in sustaining long-term growth.

In light of the GDP numbers, as well as the MPC decision today, the message is clear: South Africa’s economy remains fragile. An interest rate cut would have provided short-term relief, but the decision to hold the rate where it is preserves stability.

However, unless structural issues in sectors like construction are addressed, growth will remain tepid and unemployment persistently high.

For SMEs, particularly those in construction supply chains, the way forward lies in resilience, innovation, and partnerships.

Government must unlock infrastructure pipelines, corporates should open their supply chains, and incubators must continue building capacity and facilitating finance.

Together, these interventions can transform interest rate decisions from being stop-gap measures into catalysts for meaningful, inclusive growth.

Shawn Theunissen - Founder of PropertyPoint