Johannesburg - The SA Reserve Bank's decision to leave interest rates unchanged is the best decision under current circumstances, the United Association of SA (Uasa) said on Friday.
“Had the interest rate been increased, it would have cost us dearly going into the future,” spokesman Andre Venter said in a statement.
“Workers are currently struggling to make ends meet and an increase would have meant even more defaults on debt repayments.”
He said the country's current account deficit was unacceptably high and the local manufacturing sector was uncompetitive due to imports.
“The main cause of our trade deficit is our infrastructure development programme, including the construction of the Kusile and Medupi power stations.
“Instead of manufacturing the required components locally, we import most of it. We are, in other words, creating jobs abroad. We are killing our local manufacturing sector by importing too much and rendering this sector uncompetitive.”
He said if the manufacturing sector produced the needed infrastructure requirements locally, government would solve a lot of its economic problems.
SARB governor Gill Marcus announced the decision of the monetary policy committee (MPC) that the repo rate would remain unchanged at 5.5 percent on Thursday, but sounded a warning of increases to come.
“We are indicating that the interest rates are likely to rise in the future,” she said.
“We do not see reducing rates on the cards at this time.”
The MPC was aware of the policy dilemma of rising inflation pressure in a subdued economic growth environment.
Protracted work stoppages, electricity supply constraints, and the slow adjustment of the current account deficit contributed to the rand's vulnerability to domestic “idiosyncratic factors”.
“Pass-through from the exchange rate to prices has been relatively muted to date but there is some evidence that it is accelerating,” she said.
“At the same time, the domestic economic outlook remains fragile, with the risks assessed to be on the downside.”
Marcus said the committee would continue to focus on the medium-term inflation trajectory and that the MPC was aware that too slow a pace of tightening could undermine inflation expectations, and could also require more aggressive tightening in the future.
The pace of tightening would depend on factors including projected inflation, inflation expectations, the state of the economy and global developments.
“We wish to reiterate that even though we are in a tightening cycle, there will not necessarily be a change in the stance at every meeting, and that the increments may not always be of the same magnitude.”
Marcus said the decision to keep the interest rates unchanged was not a unanimous decision.
In January, the committee increased the repo rate by 50 basis points to 5.5 percent. - Sapa