Last round of rate cuts?

The Monetary Policy Committee of the Reserve Bank will be meeting this week on the 27th and 28th of May 2009. The MPC has been consistently cutting interest rates as part of its policy of inflation targeting. There is wide speculation that the MPC will cut rates again this week to the tune of 100 basis points or one percent. This would take the Repo rate down to 7.5 and the Prime rate to 11 percent. Will this save you anything on your homeloan? We looked at what you could save, per month, if a cut or 50, 75, or 100 basis points would have on your million Rand mortgage over 20 years.

• A 50 basis point cut will save you R 346.56
  
• A 75 basis point cut will save you R 518.3
  
• A 100 basis point cut will save you R 688.98

At the moment the commercial banks all charge 3.5% on top of the Repo rate (this is the rate at which the Reserve Bank sells currency to the commercial banks) and there has been some controversy about this spread so the Guv, Tito Mboweni, met with the banks on Thursday 21st May to talk with them about it. The upshot is that the Reserve Bank has established a technical sub-committee to look into the matter and to report back ASAP. 'The sub-committee is convened by Mr Cas Coovadia (Banking Association South Africa) and Dr Roelf du Plooy (South African Reserve Bank)'.

If this spread was to change then you could expect to pay different amounts on your homeloan than those listed here. The 3.5% gap has created a lot of controversy, with some analysts saying it is too much while others say that it is too little. The point is that the lower an interest rate you can get on your mortgage the cheaper it will be for you to pay off. The banks are commercial organisations and have their own responsibilities, but if a more consumer centric approach to setting the gap between Repo and Prime emerges that would be best for you.