Trade unions have called the latest interest rate hike by the South African Reserve Bank (SARB) a “callous decision” that will further impoverish cash-strapped workers as the cost of borrowing rises.
The SARB last week decided to hike its benchmark lending rate for the eight consecutive time, but this time by 25 basis points from 7% to 7.25% per annum in a bid to tame elevated consumer prices.
This rate hike means the cost of borrowing has increased by a cumulative 375 basis points since the normalisation of policy rates began in November 2021.
Trade union UASA’s spokesperson, Abigail Moyo, said workers would feel the pinch after latest repo rate hike.
“Higher prices, a looming electricity increase of nearly three times the current inflation rate in April, combined with higher interest rates, bring a walloping double blow to workers’ budgets, shrinking their disposable income even further,” Moyo said.
Though economists have noted that the softer increase meant that the hiking cycle was coming near to an end, workers unions have called the SARB to halt any future hikes.
The Congress of South African Trade Unions (Cosatu) on Friday said the National Credit Regulator’s reports attested to the fact that workers were drowning in debt and were still struggling to recover from the Covid-19 pandemic.
The overwhelming 70% of workers who earn less than R5 900 per month are also indebted through loan sharks, as they try to juggle around the rising cost of grocery, transport and electricity.
Cosatu national spokesperson Sizwe Pamla said these rate hikes, coupled with rising administered prices, would make it even harder for them to continue to pay their loans and put them at risk of losing their homes, cars, and other possessions that they earned over many years.
“This will make it even more difficult for workers to feed their families and threaten the sustainability of thousands of SMMEs. Workers will likely lose jobs or face wage stagnation,” Pamla said.
“They cannot afford to continue to indulge the SARB’s fetish with ghastly repo rate hikes month after month. The government needs to address those issues within its ambit to fix this crisis and alleviate the pressure on workers and the economy.”
As a result, Cosatu called for a halt on further repo rate hikes and a shift in attitudes by the commercial banks, a reduction in the fuel tax regime to reduce record petrol prices, among other interventions.
SARB Governor Lesetja Kganyago said as the economic and financial conditions were expected to remain more volatile for the foreseeable future, the bank would seek to look through temporary price shocks and focus on potential second round effects and the risks of de-anchoring inflation expectations.
Kganyago said guiding inflation back towards the midpoint of the target band could reduce the economic costs of high inflation and enable lower interest rates in the future.
Headline inflation is only expected to sustainably revert to the midpoint of the target range by the fourth quarter of 2024.
The South African Federation of Trade Unions (Saftu) has remained opposed to the imported inflation targeting policy by the SARB, saying it was “immersed in neoliberalism”.
Saftu’s general secretary, Zwelinzima Vavi, on Friday said this instrument that might be tailored for highly developed economies with high living standards has been transplanted into a country with massive developmental backlogs.
“To make things worse the band of 3-6% inflation target is way too low, such that a slight increase of inflation interest rates are used to weigh heavily on the ordinary working people,” Vavi said.
“The economy is paying a heavy price to realise this target. Interest rate hikes have contributed to the worsening living standards as the cost of living increases with every increase in rates.”
The SARB has forecast gross domestic product growth of only 0.3% in 2023 as a result of extensive load shedding and other logistical constraints.
Anchor Capital’s investment analyst on fixed income, Casey Delport, said the SARB appeared as uncertain as financial markets at large on the direction of both the global and local economic outlook, frequently citing uncertainty to its inflation and growth forecast.
“Notwithstanding the more muted decision, Kganyago frequently underlined the importance of price stability to the greater South African economy - despite the short-term costs to local consumers,” Delport said.
“At the end of the day, for South Africa to achieve sustainable, long-term economic growth, price stability remains necessary, albeit not a sufficient condition.”