The South African Federation of Trade Unions condemns the decision by the SA Reserve Bank to raise the Repo rate – the benchmark interest rate at which the SARB lends money to other banks – by 0.25% to 6.75%. This will inevitably lead to an increase in the cost of living for millions of South Africans.
Changes in the repo rate affect the prime lending rate, which commercial banks use as a starting point to calculate interest rates for their clients. These include all those with bonds on houses, loans on cars and overdrafts on bank accounts and credit cards.
They will all now face higher interest payments, at a time when many other costs are rising after the VAT increase, successive fuel price hikes and the increases in so-called ‘sin taxes’ by up to 10%.
More and more people are forced to survive on the basis of credit as a result of losing their jobs and the rise in the cost of living. Their plight will now get even worse.
This decision exposes the narrow mandate of the SARB which is purely restricted to price stability above the crisis of unemployment, poverty and inequality.
The Bank’s justification for the rise is to prevent further inflation, yet it may well lead to they very opposite, as businesses pass on their higher interest charges to their customers in higher prices, which will then have a knock-on effect on all other prices.
Even worse, firms may well react by reducing their cost of doing business by lowering wages, cutting working hours or retrenching workers. It will also serve as a deterrent to those wanting to set up new businesses, as the interest rates on start-up loans increase.
The only beneficiaries will be the commercial banks and currency speculators, who will make big short-term gains without bringing any benefit to the economy as a whole.
All this will plunge the economy into an even deeper crisis.
SAFTU renews its call for the nationalisation of the Reserve Bank under democratic worker and community control. Instead of acting on behalf of capitalist monopolies, it should adopt policies to promote industrial development, reintroduce foreign exchange controls, claw back money illicitly smuggled out of the country and compel commercial banks to prioritise lending to those who will create jobs and accelerate economic growth.