Rate cut welcomed, but economy needs more

Welcomed, but the economy needs more, says Samuel Seeff, chairman of the Seeff Property Group, following the interest rate cut of 25bps announced today by the Reserve Bank.
 
This is the fourth rate cut by the Reserve Bank since the latter half of last year and reduces the repo rate to 7.25% (from 7.50%), and the prime rate to 10.75% (from 11%). Seeff, however, believes the Bank missed a crucial opportunity to provide a more meaningful cut of at least 50bps as a vital boost for the economy, consumers and the property market.
 
The conditions for a robust rate cut are ideal given the remarkably low inflation which, despite the recent benign increase to 2.8% is still comfortably below the SARB’s 3-6% target range. Additionally, despite global volatility, the strengthened Rand poses no risk of igniting an inflationary spiral, given the subdued demand-side pressures.
 
Seeff says that at this pivotal juncture, there is nothing more critical right now than economic growth and job creation. Lowering borrowing costs would stimulate business investment and crucially, put more money back into the pockets of consumers, thereby boosting spending.
 
Even with the latest rate cut, the interest rate is still above pre-Covid levels. Seeff says this continues to erode any benefits from previous rate adjustments and remains an impediment to real economic growth so vitally needed.
 
The high interest rate has done considerable damage to the economy. Consumers are struggling, and while this rate cut will bring much needed relief, Seeff says more needs to be done given the dire need for economic growth and jobs.
 
The property market currently still lags the pre-Covid volumes with the first quarter of this year disappointingly some 10% down compared to the same time last year. Further interest rate cuts are needed to drive higher sales volumes which would leverage the property sector’s significant economic multiplier effect to further boost economic growth.
 
Nonetheless, Seeff says this rate cut will be a boost for affordability and enable more first-time buyers to get into the market. The continued positive mortgage lending environment further adds to the good buying conditions. We are also seeing improved price growth in areas where stock levels are depleting which is good news for sellers too.
 
As a result of the 25bps rate cut, mortgage repayments will reduce by:
 
R750 000 bond – from R7,741 to R7,614 – thus saving R127
R900 000 bond – from R9,290 to R9,137  – thus saving R153
R1 000 000 bond – from R10,322 to R10,152  – thus saving R170
R1 500 000 bond – from R15,483 to R15,228  – thus saving R255
R2 000 000 bond – from R20,644 to R20,305 – thus saving R339
R2 500 000 bond – from R25,805 to R25,381  – thus saving R424
R3 000 000 bond – from R30,966 to R30,457  – thus saving R509
R5 000 000 bond – from R51,609 to R50,761  – thus saving R848
(Based on a 20-year repayment period at the prime rate)