Interest rates 23 July 2015 Compiled by Jacques du Toit Property Analyst Absa Home Loans 45 Mooi Street Johannesburg | 2001 PO Box 7735 Johannesburg | 2000 South Africa Tel +27 (0)11 350 7246 jacques@absa.co.za 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 Bank Limited and/or the authors of the material.

Interest rates hiked by 25 basis points

The South African Reserve Bank’s Monetary Policy Committee (MPC) raised the key monetary policy interest rate – the repurchase, or repo rate – by 25 basis points from 5,75% to 6% per annum. Absa consequently announced that its prime lending and variable mortgage interest rates will rise from 9,25% to 9,5%, effective from 24 July 2015. Lending rates have been hiked by a cumulative 100 basis points since the start of 2014. The latest interest rate hike came against the background of trends in and expectations regarding domestic inflation and some of its major impacting factors, such as the exchange rate, food inflation, fuel prices, electricity costs, as well as the prospect of rising interest rates in the United States later this year.

The headline consumer price inflation rate is on a rising trend after bottoming below 4% year-on-year (y/y) in February. International oil price trends, rand exchange rate movements and an increase in fuel taxes contributed to higher fuel prices in recent months, while severe drought conditions in some areas will lead to upward pressure on food inflation. Core inflation (see definition in the table below) remained relatively stable around 5,7% y/y since June last year. The Reserve Bank’s forecast for headline consumer price inflation is 5% in 2015, 6,1% in 2016 and 5,7% in 2017. Core inflation is projected at 5,6% in 2015, 5,4% in 2016 and 5,2% in 2017. Growth in real gross domestic product (GDP) is forecast by the Reserve Bank at 2% in 2015, 2,1% in 2016 and 2,6% in 2017. Interest rate movements are expected to remain largely data dependent over the next 12 to 18 months, impacted by developments on the macroeconomic front, inflation expectations and trends in the factors driving inflation. Further rate hikes are expected towards year-end and in 2016 on the back of mounting inflationary pressures. Rising interest rates will drive debt repayments and debt-service costs to higher levels, affecting household and business finances, consumer and business confidence, the demand for and affordability of credit, and consumption expenditure and fixed investment.

VariableAug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Headline CPI inflation (y/y % change) 6.4 5.9 5.9 5.8 5.3 4.4 3.9 4.0 4.5 4.6 4.7 -Core CPI inflation (y/y % change)1 5.8 5.6 5.7 5.8 5.7 5.8 5.8 5.7 5.6 5.7 5.5 -Repo rate (% per annum)2 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 6.00Prime interest rate (% per annum)2 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.50Mortgage interest rate (% per annum)2 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.501Core CPI inflation: Headline CPI inflation excluding food, non-alcoholic beverages, petrol and energy2End of periodSources: SARB, Stats SA

2014 2015

Inflation and interest rates

Home Loans | 2

Loan Increase in Cumulative rise inamount 8.50% 9.00% 9.25% 9.50% repayment with repayment with mortgage

per annum per annum, per annum, per annum, mortgage rate rising rate rising from 8.5%on effective from effective from effective from from 9.25% to 9.50% in late January 2014

29 January 2014 30 January 2014 18 July 2014 24 July 2015 in July 2015 to 9.50% in July 2015R 100 000 R 868 R 900 R 916 R 932 R 16 R 64R 200 000 R 1 736 R 1 799 R 1 832 R 1 864 R 33 R 129R 300 000 R 2 603 R 2 699 R 2 748 R 2 796 R 49 R 193R 400 000 R 3 471 R 3 599 R 3 663 R 3 729 R 65 R 257R 500 000 R 4 339 R 4 499 R 4 579 R 4 661 R 81 R 322R 600 000 R 5 207 R 5 398 R 5 495 R 5 593 R 98 R 386R 700 000 R 6 075 R 6 298 R 6 411 R 6 525 R 114 R 450R 800 000 R 6 943 R 7 198 R 7 327 R 7 457 R 130 R 514R 900 000 R 7 810 R 8 098 R 8 243 R 8 389 R 146 R 579

R 1 000 000 R 8 678 R 8 997 R 9 159 R 9 321 R 163 R 643R 1 500 000 R 13 017 R 13 496 R 13 738 R 13 982 R 244 R 965R 2 000 000 R 17 356 R 17 995 R 18 317 R 18 643 R 325 R 1 286R 2 500 000 R 21 696 R 22 493 R 22 897 R 23 303 R 407 R 1 608R 3 000 000 R 26 035 R 26 992 R 27 476 R 27 964 R 488 R 1 929R 3 500 000 R 30 374 R 31 490 R 32 055 R 32 625 R 569 R 2 251R 4 000 000 R 34 713 R 35 989 R 36 635 R 37 285 R 651 R 2 572R 4 500 000 R 39 052 R 40 488 R 41 214 R 41 946 R 732 R 2 894R 5 000 000 R 43 391 R 44 986 R 45 793 R 46 607 R 813 R 3 215

Impact of interest rate movements on monthly mortgage repaymentsCalculated over a period of 20 years

Repayment at a mortgage interest rate of

456789

10111213141516

05 06 07 08 09 10 11 12 13 14 15

%

Source: SARB

Interest rates

Repo rate Prime/mortgage rate

23456789

1011121314

05 06 07 08 09 10 11 12 13 14 15

%

Source: Stats SA

Targeted inflation**CPIX for metropolitan and other urban areas up to end-2008; CPI for all

urban areas from January 2009

Home Loans | 3

2

3

4

5

6

7

8

9

09 10 11 12 13 14 15

%

Source: Stats SA

Core CPI inflation rateCPI headline, excluding food, non-alcoholic beverages, petrol and energy

4.3 5.0 5.7 5.8 6.1 5.0 6.1 5.70

1

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016 2017

%

Source: Stats SA, SARB

Headline CPI inflation rateAll urban areas

Inflation target limits

4.1 3.5 4.6 5.2 5.6 5.6 5.4 5.20

1

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016 2017

%

Source: Stats SA, SARB

Core CPI inflation rateAll urban areas

Inflation target limits