SA Federation of Trade Unions (Saftu) Zwelinzima Vavi has come out guns blazing against the Reserve Bank’s MPC’s decision to hike interest rates by a whopping 50 basis points yesterday, bringing the repo rate from 7.25% to 7.75% and therefore, raising the prime lending rate to 11.25%.
Vavi accused the central bank’s MPC of being ‘hell bent on fighting inflation with the only tool their members know – hiking interest rates’ saying Saftu condemns the hiking of interest rates as the only means of fighting inflation.
“Interest rate hikes have dire consequences for the living standards of ordinary workers, unemployment and the livelihoods of small business traders, as well as the productive economy as a whole. Only the bankers are smiling now,” Vavi said in a statement released this morning.
Vavi said the SARB is ‘tailing’ what the USA Central Bank has done in the past few days by hiking the repo rate, saying it is frustrating for South Africans who face an unemployment rate of 42% while the unemployment rate in South Africa is 3,9%.
“In total, the interest rate hikes have soared by 425 basis points (equivalent of 4,25%) since the so-called normalisation began in November 2021. Effectively, the repo rate has grown by a cumulative 121,42%. Given the big difference between the economic circumstances facing the USA and South Africa, it is frustrating that the SA Reserve Bank keeps on tailing the Federal Reserve’s policy rates.
“Unemployment rate in the USA is 3.9%, while the real unemployment rate in South Africa is 42%. Moreover, the federal reserve has a mandate to target employment. Meanwhile, the SARB is thwarting all efforts and debates to have an official mandate that obliges the SARB to address the crisis of unemployment.
“We doubt that if the USA was facing the massive developmental challenges we have in South Africa, it would opt to hike interest rates as the only instrument of fighting inflation.
“The South African Federation of Trade Unions (SAFTU) condemns in the strongest terms possible for this rate hike. We oppose higher interest rates as the only means of fighting inflation.
“Previously, we noted how Governor Lesetja Kganyago and his colleagues continue tailing the Federal Reserve – but now it’s far worse. Since the advent of financiers, speculative chasing for profits has undermined real productive activity.
“This often creates volatility in the foreign exchange (forex) market – such as today with a rapid artificial strengthening of Rand to well below R18/$. It is this volatility, amplified by floating currencies, that makes Governor Kganyago tail the Fed, but thereby undermine South Africa’s real economy.
“Our country is ravaged by high unemployment and poverty and any responsible central bank will not hike interest rates to induce a recession and unemployment. Such a policy path is not only unreasonable but treasonous.
“We made this point already two months ago: ‘Hence people have decided to reduce certain food consumables from their daily food staple and at the same time spend 65% of their income servicing credit.
“It is therefore no surprise that FNB reported that 80% of income of the middle-income earners — the real holders of credit and loans — is depleted within 5 days of receiving it.
“The overwhelming 70% of workers who earn less than R5 900 per month are also indebted through Mashonisa (loan sharks), as they try to juggle around the rising cost of grocery, transport and electricity.
“For small businesses, the impact is also devastating. Unable to keep up with rising costs of servicing their loans and credit facilities, small businesses absorb these increased costs through pricing of their products. In the intermediate period, interest rates are therefore inflationary.”