Answer to Question #202467 in Macroeconomics for Chulumanco

Question

As a response to Covid-19 the SARB cut its benchmark interest rate to a low record. In the last meeting held on the 25th March 2021, the South African reserve bank’s Monetary Policy Committee (MPC) announced that interest rates would remain stable at 3.5 percent and the prime lending rate at 7 percent. This was largely in line with Economists expectations. What would be the effect of the decision on property price. Is there a possibility of a property bubble? 

Answer 1

The stable interest rate and prime lending rate will encourage people to acquire more mortgages. This will then raise the demand for properties pushing the prices to rise.

There is a possibility of a property bubble because property bubble happens because of increased prices of real estate as a result of demand.