The traditional SA Reserve Bank counter to rising inflation has always been to increase interest rates, and this now seems likely to continue for the foreseeable future, says Bill Rawson, Chairman of Rawson Properties – but, he adds, raising interest rates is very definitely not the only way of handling inflation and, in the current SA situation, should be avoided.
“We are now looking at a scenario in which interest rates could conceivably rise to close to the 17% level that we experienced in 2002. This will result in a complete shut-down of the economy and a 0% growth rate.
“In the housing sector, it will put an end to the buoyant market of recent years and to the steady growth of home ownership among previously disadvantaged people.
Rawson said that inflation could be equally well controlled by insisting that deposits – or where these already exist, larger deposits – are put down on all major items purchased on credit, including houses.
“As the government has said again and again, we need to foster a savings culture. If the public are told that they have to put down a 10 to 30% deposit before being able to make any big purchase, they will learn to save and inflation will be checked.”
Rawson said that if the previous scenario of high interest rates is repeated, it will lead once again to numerous people opting to rent rather than buy and to many others becoming blacklisted for non-payment of debts. This effectively makes them unable to raise finance later no matter how much their financial situation has improved.
“It would,” said Rawson, “be tragic if the huge improvements in home ownership were now wiped out. Interest rates are now high enough – let us use the other means available to us to hold down inflation.”