OUTH AFRICA RESERVE BANK CONTINUES TO TAIL THE FEDERAL RESERVE
SAFTU ON INTEREST RATE JANUARY 2024
In its pursuit of the restrictive monetary policy, the South African Reserve Bank (SARB)’s Monetary Policy Committee (MPC) has left the repurchase (repo) rate elevated at 8,25% and the prime lending rate at 11,75%.
The South African Federation of Trade Unions (SAFTU) is not surprised at this announcement. It was clear that the MPC was going to leave the repo rate unchanged, precisely because they operate by incentivising those who trade in money to hold onto Rands so as to avoid dumping and devaluation of the currency.
That they were not going to reduce the interest rates also became apparent when the US Federal Reserve did not change their policy rates in December 2023. The global monetary regime is based on the US dollar as the reserve currency of the world. Under this regime, the US dollar is at an advantage against other currencies. Added to this, the relaxation of the capital controls due to the neoliberal dogma is a factor that leaves the SA Reserve Bank vulnerable to the whims of the currency traders in the forex market and ends up tailing the US Federal Reserve’s policy rates.
Therefore, it is no surprise that Governor Lesetja Kganyago and the MPC occasioned their decision on the basis that the South African Rand is weak and has suffered 10% against the US dollar in 2023, including recent knocks a week ago.
By leaving the liberalization of capital controls in place, South Africa has surrendered its sovereignty when it comes to monetary policy. It is the macroeconomic policy choices of the ANC government that we find ourselves at the mercy of currency swindlers and the imperialist powers.
*Restrictive monetary policy hurts workers*
The regurgitation of the argument that they are using interest rates to fight inflation continues to be the main propaganda through which they aim to neutralize the masses to accept interest rates without a fightback. The blunt method of using interest rates to fight inflation, especially when they admit it is originating from the supply side, not the demand side, is to punish the working class.
The debt management company, Debt Busters, reported that total debt exposure to the annual net income ratio was still elevated over 100% in quarter 3 of 2023. The sections of the working class that earn over R35 000 monthly net income have a net-income-to-debt-ration of over 164%, having increased by 49% from 115% in 2016. Those earning between R10 000 to R20 000 have a debt exposure of 110% to their net monthly incomes.
Combined with a 2021 report by First National Bank (FNB) that its clients, who are workers, spend 80% of their salaries within 5 days of remuneration, shows that workers are under pressure and suffocating from elevated debt servicing costs as a result of interest rate hikes.
Instead of a restrictive monetary policy, we insist on a solution that will not reduce workers’ income, but a solution that will create jobs. That is, the government must invest in the productive sectors of the economy, resuscitate the industrial capacity that is lying idle, and increase production. An increase in production, under government control, will not result in monopoly companies increasing prices to meet rising consumer demand, but in a corresponding rise in production. This on its own will help us to fight inflation.
