Dawie Roodt shares good news for homeowners in South Africa
Economist Dawie Roodt believes South Africa has moved past much of its high inflation pain and anticipates further interest rate cuts, providing relief for those paying off big-ticket items and other forms of debt, including the state.
The South African Reserve Bank (SARB) Monetary Policy Committee in November voted to cut South Africa’s interest rates by 25 basis points.
This took the repo rate to 6.75% and the prime lending rate to 10.25%. The decision was unanimous.
Additionally, the Minister of Finance, Enoch Godongwana, changed the country’s inflation target to 3% with a tolerance band of 1 percentage point.
The new target immediately replaces the previous target range of between 3% and 6% and will be implemented over the next two years. This is the first adjustment to the inflation target in 25 years.
“This decision follows agreement between the Governor of the South African Reserve Bank and my consultations with the President and Cabinet,” Godongwana said when he tabled the Medium-Term Budget Policy Statement (MTBPS).
Renowned economist Dawie Roodt welcomed South Africa’s new, lower inflation target of 3%, noting that it is good news for the economy.
“Our inflation target was 3 to 6%. Now it’s coming down to 3%. This is very good news,” he said.
He explained that for years the target had effectively been set too high, allowing wages and prices to rise unnecessarily.
“If you have a band like 3 to 6%, then 6% becomes the target. Nobody’s gonna ask for a 3% wage increase—you’re going to go for a 6% at least or even more,” Roodt said.
By adopting a point target of 3%, South Africa can now better manage expectations and reduce unnecessary price increases.
Lower inflation benefits everyone, including the government itself, he said. “Inflation erodes the value of money, but inflation also erodes the value of debt. And the minister of finance has plenty of debt,” Roodt explained.
“One way of reducing debt is through high inflation, which is horribly damaging to the economy,” Roodt said.
“Now, with the inflation target down to 3%, the government and everyone else in the economy can only increase prices if there is a real increase in value or productivity.”
This change, he added, creates discipline across the economy—from businesses and unions to state-owned entities, such as Eskom, and local authorities.
More interest rate cuts to come
Roodt also highlighted the impact on interest rates and economic growth. “Much of the pain is behind us now.”
“Now we can start getting the benefits of low inflation, and one of the crucial benefits is lower nominal interest rates,” he said.
Along with the recent cut, Roodt expects further reductions in interest rates, which is positive news for homeowners and anyone carrying debt, including the state itself, which also pays interest on debt.
“The Reserve Bank recently cut rates again, and now we can start spending a little bit more money, boost the economy with slightly stronger demand, and lead to stronger economic growth,” Roodt said.
A lower inflation target also helps stabilise the currency and attract foreign investment.
“In a low inflation environment and in a stable price environment, your exchange rate is also more stable. Currency volatility is reduced, making it easier and cheaper to trade internationally,” he said.
Foreign investors, he explained, are more likely to buy South African bonds or equities if they can expect stable returns without worrying about the volatility of the rand.
Despite the positives, Roodt emphasised the shared responsibility of citizens and businesses in maintaining low inflation.
“If somebody comes to you and says, ‘I want to increase my prices above the inflation rate,’ just don’t accept that. If you want to increase your wages more than 3%, you must increase your productivity first,” he said.
“Only then are you allowed to increase your prices. It’s our job to make sure inflation remains where it is. It’s good for the economy, and it’s going to be good for all of us.”
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