Time to be bold with this week’s interest rate cut
The time is now to take advantage of the economic benefits which could flow from a lower interest rate in the current climate.
The time to be bold with an interest rate cut, and to take advantage of the positives is now. It is imperative that the interest rate adjusts to the economic realities, says Samuel Seeff, chairperson of the Seeff Property Group.
Even with the current factors and challenges facing the country, Seeff says conditions are favourable for the Reserve Bank to take a bold stance and reduce the interest rate by 50bps this week.
A big factor is that inflation has reduced dramatically to around 3.2% in January. It is well within, and near the bottom of the Reserve Bank’s target range of 3%-6%. This is also notably down from the 6% average in 2023, and the 4.4% average for 2024 (according to StatsSA).
A further important factor is the decline in the oil price to around USD 70 per barrel, down since last year and in fact trending below the expected rate. This will drive inflation down further, or at least keep it contained around the current level, thus adding further incentive to the Bank to make a bold cut, he says.
Additionally, the Rand remains stable, and after weakening slightly, it in fact strengthened over the weekend following the news that the Trump-administration had expelled SA’s ambassador.
Seeff says the time is now to take advantage of the economic benefits which could flow from a lower interest rate in the current climate. The gap between inflation and the interest rate is still too high, and the interest rate needs to be brought down further which would further stimulate and increase activity in the property market, but most importantly, would be a crucial incentive to stimulate economic growth, and with that job creation.
The prime interest rate at 11% is still a full 100bps higher compared to the pre-Covid rate in January 2020 when it was 10%, and brought down to 9.75% at end of January 2020, and subsequently down to 7%. Comparatively, inflation is now down to 3.2% while it was at around 4.5% in January 2020.
The need for a lower interest rate has become an economic imperative and there is a golden opportunity right now. Seeff says while a 25bps cut would certainly be welcomed, it is simply not enough. A bold cut of at least 50bps is needed.
Issued by: Gina Meintjes
