The SA Reserve Bank’s latest interest rate hike would impact struggling workers who would be faced with spiralling food and transport prices and higher bond repayments, trade unions warned this week. \
The SA Reserve Bank announced a 25 basis point interest rate increase, bringing the repo rate to 4% and commercial banks’ prime lending rates to 7.5% in response to rising inflation. This is the second interest rate hike in the upward cycle since the bank raised rates by 25 basis points in November 2021 after radically cutting rates during the Covid-19 pandemic from 6.5% to 3.5% in mid-2020.
Economists had widely expected the decision to increase the repo rate following the ongoing rise in the consumer price inflation (CPI) rate from 3.2% in January 2021 to 5.9% by December 2021. The MPC aims for a CPI rate of 4.5%.
Congress of South African Trade Unions spokesperson Sizwe Pamla said the latest interest rate hike would “repeal” the income of workers and social grant beneficiaries.
“Unfortunately, in the current reality where 25 million people are on welfare and workers’ wages remain stagnant, a runaway inflation cannot be allowed to repeal their little stipends.”
He said price stability was important, but the union “denounced” the Reserve Bank’s “conservative, one-dimensional and narrow pursuit of the protection of the value of the currency”.
“We still insist that the Reserve Bank’s mandate cannot just be limited only to keeping inflation under control, but it also needs to focus on supporting economic growth and job creation too. Narrowly focusing on inflation is wrong when a large part of the cause of inflation is imported in the form of oil prices and food prices. The big challenge for government is to find a solution to the forever rising price of such critical supplies as fuel and electricity,” Pamla said.
“Monetary policy, the domain of the Reserve Bank, has a profound impact on the South African economic environment and the ability of the country to meet its development goals.”
The trade union called for the removal of the bank’s current board of directors.
“The country needs people who can maintain inflation-targeting, protecting the value of the rand, living standards, and the value of investment capitals, whilst still being able to prioritise employment,” he said.
United Association of South Africa spokesperson, Abigail Moyo, said that while economists had widely expected the increase, its decision would put more pressure on homeowners and others in debt due to higher interest payments.
“Economists concur that, at 4%, the repo rate is still much lower than the 6.25% it used to be in March 2020 before the onset of Covid-19, which caused the MPC to reduce the repo rate to 3.5% in the middle of 2020,” she said.
“Although the increase in the CPI rate was driven mainly by rising fuel prices, due to higher oil prices and a weaker rand exchange rate, and higher municipal rates, analysis shows that prices of other goods and services also increased on account of higher fuel and electricity prices – the so-called second-round effect. The MPC always stated clearly that it is more concerned about second-round price increases than, for instance, the effect of an “oil price shock” on CPI – and reiterated this stance,” Moyo said.
The SARB expects economic growth to slow in 2022, following a recovery in 2021.
“High interest rates are a concern for a country that has an all-time high unemployment rate. This means that average South Africans will continue to get a huge knock in the pocket as they try to keep up with high interest rates on bonds and other debt payments,” she said.
