The South African Federation of Trade Unions (SAFTU) notes today’s decision by the South African Reserve Bank’s Monetary Policy Committee (MPC) to leave the repo rate unchanged at 7%, with four members voting to hold rates and two favouring a further increase of 25 basis points. While workers may welcome temporary relief from yet another interest-rate increase, this decision should not be mistaken for a departure from the Reserve Bank’s failed inflation-targeting orthodoxy. Inflation has risen to 5.0%, the highest level in two years and well above the Bank’s preferred 3% target.
Today’s decision merely postpones the inevitable consequences of an inflation-targeting regime that seeks to suppress inflation by suppressing economic activity. Under this framework, every increase in inflation—regardless of its cause—ultimately places workers, households and productive businesses in the firing line for higher borrowing costs.
Indeed, the SARB itself acknowledged that inflation risks remain tilted to the upside and that services inflation, inflation expectations and global uncertainties continue to present significant challenges. Two members of the MPC already considered current conditions sufficient to justify an immediate increase in interest rates.
SAFTU is particularly concerned by developments in the international economy that are likely to intensify inflationary pressures over the coming months. The escalating protectionist agenda of the Trump administration, including proposals to impose substantially higher tariffs on imports from Canada and several African countries on the basis of allegations that they benefit from “slave labour”, threatens to increase prices throughout the United States economy by raising the cost of imported goods and production inputs.
Should these tariff measures significantly increase inflation in the United States, the US Federal Reserve—operating under a similar inflation-targeting framework—is likely to respond by maintaining higher interest rates or tightening monetary policy further. Although the SARB claims to operate independently, in practice it has repeatedly mirrored the broad direction of the US Federal Reserve in an effort to defend the exchange rate and reassure international financial markets. As long as the US dollar remains the dominant global reserve currency and international capital flows continue to be driven by US monetary policy, South Africa remains vulnerable to these external pressures.
In practice, this means that even if South Africa’s domestic economy remains weak, external monetary conditions may place pressure on the SARB to tighten monetary policy once again. This dependence illustrates one of the fundamental weaknesses of South Africa’s current monetary policy framework: domestic interest-rate decisions increasingly become subordinate to developments in advanced economies rather than the developmental needs of South Africa’s workers, industries and unemployed.
At the same time, the inflation currently confronting South Africa is driven largely by supply-side pressures rather than excessive domestic demand. Recent increases in inflation have been fuelled by higher fuel prices, administered prices such as electricity tariffs, transport costs and other regulated charges that lie entirely outside the purchasing decisions of ordinary workers. The SARB has itself identified fuel costs and elevated services inflation as key contributors to current inflationary pressures.
There is little evidence that these pressures are about to disappear. Continued geopolitical instability, uncertainty in global energy markets and repeated increases in administered prices mean that inflationary risks remain significant. Under its current framework, the SARB is therefore likely to conclude that further interest-rate increases are necessary, even though higher borrowing costs will do nothing to reduce electricity tariffs, lower fuel prices, repair ports and railways, or resolve global supply-chain disruptions.
This exposes the central contradiction at the heart of inflation targeting.
Instead of addressing the actual causes of inflation, inflation targeting attempts to reduce aggregate demand by making borrowing more expensive, discouraging household consumption and slowing economic activity. Workers become the sacrificial lambs of a policy that deliberately weakens demand instead of confronting the real sources of inflation. Families pay more for their homes, vehicles and personal debt. Small businesses postpone investment. Manufacturers delay expansion. Jobs disappear—not because inflation has been defeated, but because economic activity has been deliberately suppressed.
This approach may reduce inflation statistically over time, but it does so by deliberately weakening the economy and imposing the burden of adjustment on workers, the poor and the unemployed.
South Africa cannot continue fighting supply-side inflation with demand-side weapons.
Higher interest rates cannot produce more electricity. They cannot lower administered municipal tariffs. They cannot reduce international oil prices. Nor will they repair ports, railways and logistics systems or expand productive industrial capacity.
What they can do is increase bondholder returns, raise mortgage repayments, increase the cost of productive investment, discourage industrial expansion and deepen unemployment. The principal beneficiaries are commercial banks, financial institutions and holders of financial assets, whose returns increase as borrowing costs rise. Once again, wealth is transferred from workers, indebted households and productive enterprises to the financial sector.
South Africa’s economy continues to suffer from chronically weak growth, deindustrialisation, idle productive capacity, an investment strike by sections of private capital and one of the highest unemployment rates in the world. Under these conditions, monetary policy should support productive investment, employment creation and industrial development rather than deliberately suppressing economic demand.
SAFTU therefore reiterates its long-standing call for a fundamental review of South Africa’s monetary policy framework. The inflation-targeting regime—particularly the arbitrary 3–6% target range and the even lower de facto target now being pursued—was never democratically debated or endorsed by the people of South Africa. It was imposed without any social mandate, despite the country’s catastrophic levels of unemployment, poverty, inequality and underdevelopment inherited from colonialism, apartheid and capitalism.
The Reserve Bank must cease treating inflation as its overriding policy objective while ignoring the devastating social consequences of persistently high interest rates for workers, poor households, SMMEs and productive industries.
South Africa urgently requires a new developmental macroeconomic framework that coordinates fiscal, industrial, energy and monetary policy around employment creation, industrialisation, productive investment and inclusive growth. Inflation control cannot remain the only objective of monetary policy while unemployment, poverty, inequality and deindustrialisation continue to deepen.
Workers did not create this inflation. They should not be expected to pay for it through higher interest rates, slower growth and fewer jobs. It is time to abandon the failed orthodoxy of inflation targeting and replace it with a developmental monetary policy that puts jobs, production and human development ahead of the interests of financial markets.
A statement was issued on behalf of SAFTU by the General Secretary, Zwelinzima Vavi.
For media inquiries, contact the National Spokesperson at:
Newton Masuku newtonm@saftu.org.za
0661682157
Media Officer: Asive Dyani 0719019564
