Renier Kriek, Managing Director at Sentinel Homes has criticised the SARB's 25 basis point interest rate cut, arguing it fails to provide the necessary stimulus for South Africa's struggling economy
Image: File picture: James White
The South African Reserve Bank's (SARB) latest interest rate decision has come under fire from property sector leaders, who argue that the 25 basis point cut announced last week falls short of providing the stimulus the struggling economy needs.
SARB governor Lesetja Kganyago confirmed that the Monetary Policy Committee (MPC) had decided to reduce the repo rate to 7.25%, citing a benign inflation outlook and subdued economic growth projections.
Despite inflation sitting at just 2.8%, below the SARB’s 3–6% target range, the central bank opted for a modest reduction. Kganyago indicated that while the inflation forecast has been revised down due to favourable oil prices, a stronger exchange rate, and the cancellation of VAT increases, the MPC considered “an adverse scenario” involving currency weakness and global trade tensions, which could lead to stagflation.
But the property sector is not convinced by SARB’s cautious approach.
“The SARB has consistently preached that their policy bible contains only one chapter, titled ‘inflation targeting’,” said Renier Kriek, managing director of Sentinel Homes. “Their messaging has consistently and unfailingly pledged that their mandate is the only consideration that guides their decisions.”
Kriek criticised the SARB’s continued adherence to this mandate, arguing that persistent low inflation has provided a window for more aggressive monetary easing, which has been missed. “Despite preaching vague and opaque ‘risks to the upside’ to justify their hawkishness in recent years, it’s clear that the SARB has been disingenuous,” said Kriek.
He believes the real driver behind the SARB’s decisions is a shift toward a tighter long-term inflation objective, even though this new policy direction has not yet been formally adopted.
Kriek was referring to Kganyago announcing last week that the MPC is now actively considering moving the inflation objective to 3%, the lower bound of the current target range. “The MPC is of the view that the 3% scenario is more attractive than the 4.5% baseline, and we would like to see inflation expectations move lower,” Kganyago said.
While this shift could result in lower interest rates in the long term, Kriek warned of the risks involved in implementing it now. “The SA economy is a very frail patient at the moment and keeping interest rates at current high levels in order to achieve longer-term outcomes is a risky gambit,” he said. “We should attempt monetary stimulus first and attempt the MPC’s incisive reforms once the patient is back on its feet.”
For the property market, the cumulative rate cuts have already started to unlock demand. “The cumulative 75 bps cuts have already had the effect of bringing previously pent-up demand spilling into the residential property market,” said Kriek. But this recovery remains fragile. “Home loan delinquency is up 35% in the last 3 years, signifying the tremendous pressure households are experiencing related to their finances.”
Kriek warned that a continued rise in delinquency could lead to an influx of distressed properties, putting further downward pressure on prices. Still, he sees a “small window of opportunity” for households looking to enter the market. “The MPC found that a neutral policy rate should be 25 bps lower than the new repo rates meaning we can expect at least one more cut in the near future.”
Looking ahead, he cautioned that the SARB’s hawkish instincts could return if inflation ticks up. “It seems that if inflation inches higher even slightly, the MPC’s overly hawkish instincts will rule decision-making at the next meeting, favouring keeping rates steady despite low employment and flaccid economic growth.”
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