Point of view: the case for lower interest rates

IOL News

18-05-2025

South Africa faces a dire jobs crisis, with unemployment soaring to 32.9%. This article argues for a 50 basis point cut in interest rates to stimulate economic growth, create jobs, and alleviate the financial burden on households.
Time to Back South Africans: Cut Interest Rates and Prioritise Jobs
South Africa is facing a jobs crisis, and it's getting worse. The latest employment figures are hard to stomach: 237,000 jobs lost in the first quarter of 2025, pushing the official unemployment rate to a staggering 32.9%. That's 8.2 million people without work. If we include those who've given up looking for work, that figure balloons to 12.7 million, roughly 43.1% of the workforce.
These aren't just stats. Behind each number is a household battling to survive, young people losing hope, and communities on the brink. Unemployment at this scale isn't just an economic issue, it's a social crisis with far-reaching consequences.
It's no surprise, then, that poverty continues to tighten its grip. Over half of South Africans, around 55%, live below the poverty line, according to recent data from Stats SA. Crime has ticked up, with SAPS reporting a 6.7% rise in violent incidents like robbery and murder last year. Mental health is under pressure too, as clinics report growing cases of depression and anxiety driven by financial stress. Among the youth, almost 60% are unemployed, and the frustration is palpable. The risk of social unrest is not abstract, it's real, and it's growing.
This is the reality our economy is contending with. Consumer spending is shrinking. Small businesses are struggling. And economic growth has slowed to a crawl, just 1% expected this year, after barely managing 0.6% in 2024.
So, what can be done?
Samuel Seeff, chair of the Seeff Property Group, has called on the South African Reserve Bank's Monetary Policy Committee (MPC) to cut interest rates by at least 50 basis points. He's not wrong. The economy needs a boost, and monetary policy can play a pivotal role. Inflation is well under control, sitting at 2.7% in March, comfortably below the Bank's target range. Yet interest rates remain stubbornly high, even above pre-Covid levels.
In this context, high interest rates are doing more harm than good. They're dampening economic activity, holding back investment, and making it harder for ordinary South Africans to make ends meet. Bond repayments are higher. Credit is more expensive. The property market remains subdued, with FNB noting sales volumes are still lagging behind pre-pandemic levels. When consumers have less to spend, small businesses, from spaza shops to family-run restaurants, feel the pinch.
A rate cut, on the other hand, could help unlock growth. It would reduce borrowing costs, giving households some breathing room. Consumer spending, which makes up around 60% of our GDP, could recover. Small and medium-sized businesses could access more affordable finance to invest and hire. The property sector could bounce back, historical trends show that a 50 basis point cut could lift property transactions by 10-15%. This would benefit construction too, a sector that absorbs large numbers of low-skilled workers.
Crucially, such a move would signal confidence and commitment to economic recovery, both to local investors and international partners. It would show that we're serious about growth, job creation, and improving living standards.
Other central banks are already responding to similar global conditions. The Bank of England and the European Central Bank have trimmed rates by 25 basis points. The US Federal Reserve is holding steady despite global uncertainties. South Africa's real interest rate, our rate minus inflation, is among the highest in the world. It's not just uncompetitive, it's counterproductive.
The Reserve Bank's continued caution no longer seems justified. Inflation is in check, and the global outlook is improving. Now is the time for decisive action.
If the MPC fails to act, the costs will mount. We could see unemployment rise by the end of the year. Household debt is already high, sitting at around 62% of income, and could worsen. Inequality, one of our most entrenched challenges, will deepen. And faith in the country's economic future will continue to erode.
A 50 basis point rate cut isn't reckless, it's necessary. It's a step toward giving South Africans a fair shot at recovery, dignity, and hope.
It's time to act, before the damage becomes irreversible.
* Maleke is the editor of Personal Finance.
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