No reason to delay rate cut, economy and property need it
A call has been made on the bank to provide a meaningful rate cut of at least 50bps.
Ahead of the crucial interest rate decision by the Reserve Bank this week, Samuel Seeff, chairperson of the Seeff Property Group, has called on the Bank to provide a meaningful rate cut of at least 50bps.
The economy and property market needs a rate cut and there is no reason to delay it any further, says Seeff. We have recently seen positive developments on the economic front such as the Grey List exit, S&P credit rating upgrade to BB, the first in 20-years, and positive job growth data for the last quarter. While the 1.2% expected growth outlook remains weak, it is nonetheless an improvement over last year, but can only improve with further economic stimulation including a rate cut, says Seeff.
While we appreciate the move to lower the inflation target over the next two years as a strategy to bring down the interest rate, the rate is still about 50bps too high. Seeff says it remains a hindrance to the property market and economic spending.
Indicators are particularly favourable for an immediate rate cut, he says further. Inflation is at a historic low of around 3.2% for this year. It is notably lower compared to last year, and the lowest since 1994 if you exclude the Covid-anomaly, and 2004/5 boom period when economic growth was at 5%.
The current inflation rate also sits comfortably within the Bank’s proposed new lower target of 2-4%, thus providing ample motivation for a robust cut this week. This is especially important ahead of the annual busy retail season. The ZAR to the USD has been stable at below R18.00 for a significant portion of this year, recently dipping to ZAR17.06.
Despite the strong fundamentals for most of this year, there has only been three rate cuts, the last being in July. The Bank has missed the last two opportunities given that inflation has been largely contained despite marginal variations. Notably, the US Federal Reserve has made two cuts since mid-year (September and October) totalling 50bps.
While there has been more movement in the property market on the back of the three rate cuts in the first half of the year, the uptick is nowhere near where it should be. This is largely because the interest rate has remained higher than necessary.
The average house price growth is also still only at around 5%, save for the more robust Western Cape property market. A further rate cut would immediately lower the cost of borrowing and inject more money back into consumer wallets. It will improve property affordability and stimulate activity by lowering the cost of home loans and the general cost of credit.
We, therefore, believe there is every reason to expect a rate cut of at least 25bps, although a 50bps reduction would provide a much stronger injection into the economy, concludes Seeff.
Issued by Gina Meintjes
