Further interest rate rise expected



A further interest rate rise – widely expected before the end of June – will have little effect on inflation, but is likely to do serious harm to economic growth, consumer confidence and housing affordability. So says John Herbst, CEO of property group Aida National Franchises, who is urging the Reserve Bank to "resist the temptation" to raise interest rates any further this year. "We understand that the Bank is using higher interest rates to try to curb inflation, and that it has a delicate balancing act to perform, but any further home loan rate increase this year is going to have a negative impact on the residential property market." And that would have negative consequences for the whole economy, he says. "Many potential foreign investors look to our property market to indicate our economic health. So do South Africans, and nothing dents our confidence in our economy quite like a weak property market. We saw this in the late 1990s when uncontrolled rate hikes devastated the market and the country’s confidence in its economy." Herbst also says an interest rate rise at this point will do little to curb spending. "Most consumers, and especially those in the lower income groups, are already under siege, especially from higher food and petrol prices, and the effects of the two rate increases earlier this year. Spending, therefore, has already been drastically curtailed and higher interest rates will consequently be of little help to the economy." It will, however, make life more difficult for many in the emerging middle-class who have become property owners for the first time in recent years. "And while the upper-middle sector of the residential market continues to do well, we really need to build the lower-middle sector, which is now being impoverished. "The Bank must remember that every time it lifts interest rates, it causes a whole section of this group to lose their homes and makes it difficult, if not impossible, for other potential home owners to afford a property. "So rather than concentrate on achieving its arbitrary inflation targets, we believe it should be looking to stimulate economic growth and reduce our very high unemployment levels." Article: 07/05/2002 For the latest real estate news, visit http://www.property24.co.za