The South African Reserve Bank (SARB)’s conservative approach to interest rate cuts has drawn criticism amidst increasing economic hardships. Renier Kriek, managing director of Sentinel Homes, labelled the Bank’s reluctance to implement significant cuts as “unethical and unjustifiable,” given its impact on struggling South Africans. At its November 2024 meeting, the Monetary Policy Committee (MPC) reduced the repo rate by only 25 basis points, disappointing those hoping for substantial relief.

Kriek argues that SARB’s strict adherence to its inflation-targeting mandate ignores the wider economic consequences, especially as inflation has dropped below pre-pandemic levels and the 3%-6% target range. He believes inflation targeting has already achieved its goal of dampening spending and reducing price increases, making larger rate cuts necessary to alleviate mounting financial pressures.

Home loan defaults have surged, with the percentage of fully paid loans falling from 92%-93% to 87.8% in the second quarter of 2024, a 50% increase in non-payments. Rising interest rates are also linked to increased food insecurity and stagnant GDP growth, with poorer South Africans bearing the brunt. Meanwhile, the property market sees growth primarily among the top 30% of income earners, as banks provide favourable terms to offset defaults.

Kriek emphasises the opportunity presented by low inflation to reduce rates aggressively, stimulate economic activity, and create jobs. He urges the SARB to adopt a more flexible and proactive monetary policy, warning that its cautious approach risks exacerbating unemployment, poverty, and overall economic stagnation.