The South African Federation of Trade Unions (SAFTU) has noted with delight, the decrease in inflation from 5,1% in June to 4,6% in July. Given the South African Reserve Bank (SARB)’s use of inflation to justify interest rate hikes, we call on them to reduce the interest rates in the September meeting of the Monetary Policy Committee (MPC) because inflation has eased near the mid-point of the target range.
The SA Reserve Bank has left the interest rate unchanged for the 6th consecutive time, at 8,25% and the prime lending rate at 11,75%. In its speech, the MPC argues that it is keeping the rates up because of high inflation. Based on the sentiment and expectations of inflation, the SARB anchors its policy rates. Now that inflation has consistently been well within the target range of 3 – 6%, the SARB has no justification to strangulate the economy by keeping the interest rates high.
Calling the SARB to reduce the interest rates because inflation has stabilised near the mid-point of the target range, is not because we are illusioned in the misguided instrument of using interest rates for inflation targeting. Inflation targeting is premised on a pro-capitalist analysis that assumes too much money is always the cause of inflation. SAFTU still rejects this premise. Our argument is that by using even their most touted reason, the high interest rates are not justifiable.
SAFTU notes that SARB also uses the policy rates as a method of preventing the dumping of the South African Currency (ZAR) in the foreign exchange market. It is a defence instrument, in the context of the radically relaxed exchange controls, against the currency traders who speculate on currencies intending to profit from the interest rates differential between countries. In other words, with the promise of a higher return, the SARB incentivise the currency traders to hold onto the Rand at the expense of the economy and the working class, who are paying dearly for the high interest rates in debt servicing costs.
Previously, we have shown that (according to TransUnion) since the rates hiking trajectory started 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 corroborated this evidence by showing that those homeowners with a house worth R1, 5 million are paying R4 600.
It is these suffocating costs in credit and debt repayment, combined with the easing of inflation, that the SA Reserve Bank must reduce the interest rates.
