Home South African Business hopes GNU will herald interest rates cut, strengthen rand

Business hopes GNU will herald interest rates cut, strengthen rand

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The business community, particularly the property industry, has expressed hope that the formation of a government of national unity in South Africa will bring stability to volatile financial markets and incentivise the SA Reserve Bank to cut interest rates.

President Cyril Ramaphosa meeting DA leader John Steenhuisen following the swearing-in of Members of Parliament during the first sitting of the National Assembly. Picture: Supplied

THE BUSINESS community, particularly the property industry, has expressed hope that the formation of a government of national unity (GNU) in South Africa will bring stability to volatile financial markets and incentivise the SA Reserve Bank (Sarb) to cut interest rates.

This comes as the country’s two biggest political parties, the ANC and the DA, on Friday announced that they had agreed to form a GNU together with other smaller parties, the IFP and the PA, after the May 29 election had no decisive winner.

The formation of the GNU saw President Cyril Ramaphosa being re-elected in Parliament, with former minister of Agriculture Thoko Didiza appointed as Speaker of Parliament and Dr Annelie Lotriet of the DA elected as Deputy Speaker.

The financial markets had been on tenterhooks for days before Friday’s announcement of the GNU over fears that the ANC might opt to form a government with “radical parties” who do not have “investor-friendly” policies.

The JSE All Share Index closed 0.9% higher to 77,054 points on Friday and the rand surged to its best level in three weeks on Monday, rising 0.7% to R18.24 against the US dollar.

Business Leadership SA (BLSA) said on Saturday that the government must assure all its citizens, as well as local and international investors, that South Africa was open for business, underpinned by a robust constitutional democracy, well-managed and capable institutions and the rule of law.

“The business community has been very clear and collaborative: for South Africa to grow and thrive it needs responsive economic policy, regulatory certainty, efficient network industries, a capable state, effective public services, safety and security, the rule of law and social stability,” said BLSA CEO Busi Mavuso.

“The primary task now is for all spheres of government to accelerate the momentum.”

Ramaphosa is expected to be inaugurated on Wednesday, followed by the announcement of a new Cabinet, which is expected to be representative of signatories of the GNU.

“We are eager to collaborate with President Ramaphosa and his government, and await the appointment of his cabinet ministers,” said Cas Coovadia, CEO of Business Unity SA.

“As the business community, we firmly believe in the potential for this country and are fully committed to playing our part in its development.”

Lew Geffen Sotheby’s International Realty CEO, Yael Geffen, said the ANC signing a GNU deal with the DA-dominated coalition was “the most selfless and mature decision” the party has made since Jacob Zuma was sworn in as President in 2009.

Geffen says this news will undoubtedly buoy international investor confidence in the future of South Africa, and in turn boost the property market in the mid-term.

“The pillaging of our State assets will take time to die, but the checks and balances that should have been in place years ago, will start being enforced, and the culture of corruption will wither in the years to come,” Geffen said.

“That gives us as a country and an economy a chance to grow and prosper. The outlook is certainly more positive than it was a month ago.”

The property sector also said the certainty brought about by potentially prudent policies of the GNU could help deal with the prevailing high cost of borrowing.

The Sarb has left interest rates unchanged at a 14-year high of 8.25% for more than a year now as the headline consumer inflation remains stubborn towards the upper limit of the 3-6% target range.

Firzt Realty managing director, Stephen Whitcombe, said he was foreseeing that interest rates might even start to go down earlier than expected as the result of the agreement to form a GNU.

Whitcombe said many home buyers and investors who have been hesitant to commit until the outcome of the elections was clear were now already deciding to go ahead with their purchase plans, aided by the fact that the banks are still keen to lend.

“Lower interest rates would, of course, boost the property market by making home ownership more affordable and making it easier for prospective buyers to qualify for a home loan,” he said.

“Despite the fact that it is early days for the GNU, there is also a widespread belief that the parties involved so far are genuinely committed to co-governance and have a good chance of achieving the objectives outlined in their agreement, which include reducing poverty and inequality, increasing economic growth and employment, creating a professional and merit-based public service, taking strong action against crime and corruption and improving education and health care.”

– BUSINESS REPORT

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