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.
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The time to be bold is now. We have the highest real interest rate in the world (differential between the interest rate and inflation, according to Dr Roelof Botha), while the economy is limping along and barely growing. Meanwhile unemployment has climbed to an astronomical 32%, higher when other factors are considered.
Seeff says it simply 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 our 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. While the Bank will likely aim to protect the exchange rate and be concerned that if the US does not lower its rate while we do, people may shift money there—potentially weakening the exchange rate and driving inflation up—he says 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.
Prioritising growth over exchange rates
Seeff says further 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 says 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, concludes Seeff.
