Although the demand in the South African residential sector is strong enough to ensure that ‘a reasonable flow’ of sales is maintained in the residential property market over the coming year, if as the Governor of the Reserve Bank, Gill Marcus, has hinted will probably be the case, the Reserve Bank does react to high inflation rates by raising the repo rate at the next MPC meeting, the overall growth in the economy will inevitably be reduced, says Bill Rawson, Chairman of the Rawson Property Group. At this point in South Africa’s history, he says, the country simply cannot afford to let this happen.
“The Statistics SA figures released on the 27th of May,” said Rawson, “showed that the seasonally adjusted real GDP at market prices for the first quarter of 2014 decreased by an annualised rate of 0.6 percent. This is obviously disappointing after the 3% plus growth achieved in the fourth quarter of last year and many high level economists have said that in their view the South African Reserve Bank’s entire focus should now be not on curbing inflation but on restoring South Africa to real growth. Some have even gone so far as to say that the raising of the interest rates will have minimal effect on inflation because, as I have pointed out, the main drivers of inflation these days are not reckless spending by consumers but the unavoidably high fuel, electricity, food and municipal rates costs coupled with what many think are very generous public sector wage increases.”
He and many others with whom he consults on these matters, explained Rawson, are inclined to believe that whether or not the interest rate is raised by early 2015, the inflation rates will again have fallen below the 6% level and, he added, some commentators have even suggested that the raising of the rates will not in itself be an effective measure to protect the rand value, which apparently is one of the South African Reserve Bank’s declared aims.
“It is very unlikely to happen,” said Rawson, “but if the South African Reserve Bank did hold rates at their current levels for the forthcoming future that would, I believe, be the right move.”