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SARB’s repo rate increase by 50 basis points will worsen unemployment – Cosatu

Cosatu's officer bearers, President Sdumo Dlamini (left) and second Deputy President Zingisa Losi Picture: Boxer Ngwenya

Cosatu's officer bearers, President Sdumo Dlamini (left) and second Deputy President Zingisa Losi Picture: Boxer Ngwenya

Published May 19, 2022

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Durban – The federation of trade unions, Cosatu, has slammed the South African Reserve Bank’s decision to increase the repo rate by 50 basis points in response to the rising inflation levels, saying it will worsen unemployment and will continue to constrain fiscal policy.

The Reserve Bank announced on Tuesday that it has increased the repurchase rate (repo rate) for a fourth successive time by 50 basis points to 4.75 percent as runaway inflation continues depreciating the rand.

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While the federation acknowledged that price stability was important, it felt that for an economy that suffered from large external shocks, depressing demand through interest rate hikes did not make sense.

Sizwe Pamla, Cosatu national spokesperson, said using the interest rate when the main driver of inflation was not demand but rather the skyrocketing oil prices, which translated into high food prices, commodity prices and speculative exchange rate fluctuations alone would not help the situation.

“This decision reflects the extent to which the Reserve Bank takes economic growth to account in its decision-making. A narrow focus on inflation is always guaranteed to result in interest rate and output volatility.

“This will worsen unemployment and will continue to constrain fiscal policy because it will lead to a decline in output as a result of high borrowing costs, therefore, cutting the tax base,” Pamla said.

He said that this would inevitably put a strain on the budget by increasing the interest burden and raising the primary deficit while public debt would continue to explode, forcing fiscal policy to be contractionary.

“The Federation continues to argue that the Reserve Bank must pay primary attention to the cycle and long-term trend of employment growth. Cosatu wants a greater weight to be placed on employment fluctuations, but this does not mean that price stability is not considered, but it means we need an appropriate trade-off between inflation, the cost of borrowing to industry and unemployment.

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“Monetary policy must also be supportive of industrial policy. The manipulation of the interest rate with the hope that financial markets will achieve the restructuring of the economy is grossly inappropriate and inadequate. Instead, quantitative control measures on the financial system, more than interest rate manipulation will have to be applied in order to support changes in industrial structure,” Pamla said.

He added that there was a lot that the government could still do at a macro level to cushion South Africans from this crisis, and that there was an urgent need to move the country away from being overly dependent upon the ever increasing and volatile international oil prices and other factors spurring inflation.

SUNDAY TRIBUNE

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