The Monetary Policy Committee’s decision taken on Thursday 23rd July to raise interest rates by 0,25% will be hailed by many as an appropriate decision – but it is definitely not what he would have done had he been in the MPC’s shoes, says Bill Rawson, Chairman of the Rawson Property Group. He would have kept interest rates at their previous levels – and this view is consistent with the stance he has taken over the last three or four years.
“There are two possible views on this matter,” he said. “In the first, limiting inflation is regarded as a top priority and any rise in inflation above the 6% target level should be countered by a rise in interest rates. At the moment, inflation looks set to go above the 6% level in the year ahead and that, coupled with an expectation that the US Federal Reserve will raise their interest rates in the future, is no doubt what caused our policy leaders to go for the 0,25% increase.
“The second view,” said Rawson, “is that with South Africa’s official unemployment figures for the adult male population running at over 25% and unofficial figures putting the figure a great deal higher, every means should be taken to boost business confidence, stimulate the economy and reduce unemployment and that, in my view, is the correct course to follow. The MPC’s decision is, therefore, I feel wrong.”
In looking at this matter from the viewpoint of a property developer and marketer (the Rawson Property Group is one of the fastest growing estate agency groups in the country), Rawson said that at all levels in the housing market, especially at the lower levels, the impact of monthly bond increases, even when they are as low as R200 or R300 per month, has been shown by Rawson Finance, the Rawson Property Group’s bond origination division, to have an immediate dampening effect on home buyer confidence.
“Mike van Alphen, the National Manager of Rawson Finance, “has said that even the smallest rises in the interest rates immediately reduce the call for bonds by 10 to 15% and, although this setback is often only temporary, it happens every time a rise in the interest rates is put through. Right now, with over half of South Africa’s credit active population already debarred from obtaining bonds on account of impaired credit records, we cannot afford to have more potential buyers sticking to the rental market because they are unsure of their financial futures.”
The general opinion in the market, said Rawson, seems to indicate that a further 0,25% rise may well come through before the end of this year and in view of what he has said, that too would be “really unfortunate”.
For more information contact the Rawson Property Group on 021 658 7100.
