The economy needs another interest rate cut

Ahead of the meeting of the Reserve Bank’s Monetary Policy Committee this week, Seeff has called on the bank to provide another interest rate cut. While the 25-basis point reduction in July was a welcome relief, it was simply not enough to meaningfully stimulate the economy or property market, says Samuel Seeff, chairperson of the Seeff Property Group.

Although the rate cuts this year have provided some relief, we are still not seeing the level of economic momentum needed to drive economic growth and create the jobs so desperately needed. The reality, adds Seeff, is that the gap between the interest and inflation is too high.

The most critical factor right now, is the country’s GDP growth rate. The economy grew by a meagre 0.8% in the second quarter, and while slightly up on the previous month, it remains dismal, and well below what is required to make any meaningful progress on unemployment.

Overall sales volumes in the property for the first eight months of this year, while slightly improved, remain broadly still below the monthly volumes for the corresponding period in 2024. National house price growth is also only just marginally ahead of inflation, and thus still delivering very little capital value growth.

The current interest rate is still some 75bps above the pre-pandemic rate (January 2020) when inflation was at 4.5%, notably higher than the current inflation rate. Seeff says there is clear evidence that when the interest rate was cut to a historic low in the 2020-2021 period, the economy grew at a more robust rate.

Seeff argues that all the key economic indicators remain favourable for another rate cut. Inflation, while slightly up to 3.5%, remains at the lower end of the Bank’s own target range. On top of that, the Rand has remained fairly stable. This stability removes one of the main arguments for maintaining a high-interest rate environment.

Another 25-basis point cut would provide real, tangible relief to households and free up more disposable income to spend in the economy, especially at a time of international economic pressure. It is unlikely that another 25-basis point cut may risk inflation spiking, but even if that is the case, Seeff believes the trade-off would be worthwhile.

Another rate cut would further lower bond repayments, create more disposable income, and inject much-needed confidence into the property market and broader economy. We are at a critical juncture, says Seeff, and it is time for the Reserve Bank to take decisive and bold action.

Issued by: Gina Meintjes