The South African Federation of Trade Unions (SAFTU) calls on the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) to cut interest rates. As we have argued, the SARB’s decision to hike interest rates to their current high of 11,75% prime lending has significantly increased the financial burden on the working class.
This policy rate hiking is premised on an inflation-targeting method, which will even be worse now that they contemplate targeting inflation at a lower target bend. Given their ideology, it would mean they hike interest rates persistently to achieve that lower bend of inflation. This will create long-lasting pressure on the working class as the debt servicing costs will be high.
TransUnion, a company that tracks other credit trends, indicates that since the rates hiking trajectory in November 2021, the debit and credit servicing costs have grown drastically. The actual effect of this interest rate hike has resulted in the bond repayment of R4,247 per month for those who took a home bond of R1,3 million. Trade Intelligence has given related evidence by showing that those homeowners with a house worth R1, 5 million are paying R4 600.
The Experian Consumer Default Index (CDI) corroborated this data when its quarter-one report showed that new defaults in home loans grew by 21%. This indicates that the high debt servicing costs increase the burden on working-class households and lead to consumer defaults. In all areas of consumer credit, the CDI has reported severe deterioration except for vehicle and personal loans in the 1st quarter of 2024. The primary cause of this deterioration is the SARB’s restrictive monetary policy, which has hiked interest rates to their 15-year high.
Even though inflation has slowed within the medium bend of the SARB’s target, the elevated fuel, food, and clothing prices exacerbate living costs. The combination of inflation and interest rates, hiked mainly to fight inflation while incentivising financiers, has caused many homeowners to downgrade their properties.
It is not only consumers who are affected by the high interest rates, but businesses too, especially small businesses. The Experian Business Debt Index (BDI) report shows that there was an improvement in debt stress for businesses from an 18-month-long persistent deterioration in debt stress. However, the Experian report argues that the “driving forces” of this improvement are owed to “improvements in GDP growth”, not the easing of debt service costs. The debt stress for businesses likely contributes to the insolvencies and liquidations recorded in the past months, highlighting the urgent need for relief.
The current economic landscape in South Africa is characterised by job losses, wage disparities, and high interest rates; the working class has borne the brunt of these financial challenges. SARB’s restrictive monetary policy is ideological, not practical, as Governor Lesetja Kganyago claims.
The economy’s structural inefficiencies, driven by the logic of capitalist accumulation, have led to a situation where the needs of ordinary workers are consistently sidelined in favour of profit maximisation. Furthermore, the well-being of the working class has been sacrificed at the altar of the SARB’s inflation-targeting strategy, which is influenced by neoliberal ideology.
