Australia's example on interest rate fluctuations should be followed by South Africa, says a leading SA property figure.

The SA Reserve Bank has been subjected to a veritable blitz of advice on how the economy should be handled - but it will interest many to know that its apparent determination to fight inflation with increased interest rates runs counter to the latest policy being followed in Australia.

Graham Leslie, managing director of Greeff Properties, said Australia had encountered much the same problems now facing SA: high fuel and food prices, ongoing demands from the trade unions and higher-than-acceptable inflation. Like SA they had countered the inflation rate by raising interest rates.

But when recently these showed signs of reducing economic activity to a drastically low level, they began levelling off interest rates even though the inflation figures remained out of the target band.

"The thinking is that the impact of rates increased over the last two years will continue to be felt to the end of the year so there is no need for further rate increases which would be an 'overkill'," says Leslie.

By contrast, said Leslie, SA appears not to believe that the five base points interest rise of the last 24 months will have enough of an effect and further rises are needed.

"All the evidence in the housing, motor vehicle and domestic goods markets points to consumers having to cut back drastically already – so there is no need for further 'medicine' to curb inflation. All it will do will be to curb growth further."

Leslie said if the current rate levels are, as was recently anticipated, increased further, they could cripple the housing market to such an extent that a recovery would be delayed beyond 2010.

"The more one looks at what Australia is doing the more logical it appears. SA should follow in their footsteps – or face a complete meltdown in spending power," said Leslie.

www.property24.co.za

20/08/2008