Unemployment, low growth crises demand bold action

Given the alarming increase in unemployment announced this week, Samuel Seeff, chairperson of the Seeff Property Group has issued a strong call to the South African Reserve Bank’s Monetary Policy Committee (MPC) to implement a significant interest rate cut of at least 50bps at its upcoming meeting.

The latest unemployment figures paint a stark reality as another 237,000 South Africans lost their jobs in the first quarter with unemployment now at 32.9% (up from 31.9%). Some 8.2 million people are now unemployed, and on the expanded definition it stands at 12.7 million (43.1%).

This is further exacerbated by the IMF and Moody’s recently downgrading South Africa’s economic growth outlook for the year to around 1% at best, after growing at just 0.6% last year. The continued economic stagnation and rising unemployment is simply untenable, says Seeff.

The risks to the stability of South Africa far outweigh the Reserve Bank’s overly cautious approach to inflation concerns, especially since inflation has trended around the bottom of the Reserve Bank’s target range since late last year, falling to just 2.7% for March. This is below the target range.

The interest rate is still 100-basis points higher compared to the pre-Covid rate while the economy is stuttering and shedding jobs at an alarming rate. It should be noted too that the gap between the interest rate and inflation in South Africa is among the highest in the world, stifling growth.

Seeff says the prolonged period of high interest rates has demonstrably hampered economic growth and placed significant strain on the economy and property market. The recent marginal rate cuts have now proven insufficient to stimulate meaningful recovery within the property market with FNB recently reporting that sales volumes are still below pre-pandemic levels.

We have recently seen the Bank of England and the European Central Banks cut their rates by 25bps. While the US Fed kept its rates unchanged, that was expected given the impact of the US-China trade war. On this front too, progress has been made with recent meetings between the US and China and a temporary tariff relief deal.

That means the Bank’s primary justification for maintaining high interest rates have now diminished, says Seeff. Inflation is below the target range, the global economy is settling, VAT has been scrapped, and after some volatility, the Rand has stabilised. There is therefore no reason for the Bank not to step in with a meaningful rate cut of at least 50bps. South Africa can no longer wait, the time for action is now.

Issued by Gina Meintjes