The property sector has come out in strong support of a robust and decisive interest rate cut.
Samuel Seeff, chairman of the Seeff Property Group says the Reserve Bank must consider a minimum 50bps this week to counter the rising growth and unemployment risks.
“The time to be bold is now. We have the highest real interest rate in the world, while the economy is limping along and barely growing. Meanwhile unemployment has climbed to an astronomical 32%, higher when other factors are considered.”
Economists anticipate that the South African Reserve Bank will reduce interest rates by 25 basis points at the conclusion of its monetary policy meeting this week, bringing the repo rate to 7.50% and the prime rate to 11%.
If implemented, this would mark the third consecutive rate cut, following a total reduction of 50 basis points in the Reserve Bank’s previous two meetings in 2024.
Seeff said it makes no sense for the bank to persist with an interest rate policy concerned about inflation at between 3% to 6% when, clearly, the most important element for the country must be GDP growth, and with that greater employment.
Another 25bps rate cut is simply not going to provide the urgent growth boost that is needed, said Seeff. While the bank will likely look to protect the exchange rate, and be concerned that if the US does not drop its rate and we do, people may shift money there, and inflation may go up due to the weaker exchange rate, he said there is a strong counter-argument.
“We need GDP growth and unemployment to decrease, and you cannot do it with these high interest rates. Not addressing the growth and unemployment crisis poses a far greater risk to South Africa.”
Seeff pointed out that the bank has previously stepped in to provide interest rate relief during the Covid-pandemic, and should do so again. “The risks are simply far bigger than protecting the exchange rate. The biggest risk right now is not inflation, but low to no growth and rising unemployment.”
Cuts will be good for the economy, the country, and property market, he said. “It will also be good for reinvestment stimulation. If the economy grows, you may very well have the offset between those who are not investing in South Africa or who, because of our weak interest rate return, might be motivated to rather invest in a growing South Africa.”
“The exchange rate may then, in fact, get stronger again, so it’s not guaranteed that an interest rate cut will do damage to the exchange rate.” Seeff also expressed concern that there seems to be an appetite to keep the interest rate higher for longer with only two rate cuts of 25pbs each this year.
He reiterated that there needs to be at least four cuts of 25bps each, kickstarting with a 50bps cut this week.
“We have seen a pickup in momentum in the property market off the back of the two rate cuts late last year, and that momentum needs to continue. It should be encouraged and pushed, and can only be done with a lower interest rate. Now is not the time for a conservative approach in South Africa, the Reserve Bank needs to be bold,” Seeff said.