The Congress of South African Trade Unions (Cosatu) has called on the SA Reserve Bank to spare the country’s citizens further misery caused by the coronavirus by slashing the interest rate by 100 basis points (BP) on Thursday and next month.
The union federation said the country’s economy was in a recession and threatened by the coronavirus, which could send the country into full-scale recession. It feared the resultant unprecedented job losses and devastation to pension funds, especially in what is called the “risk sectors” of mining, manufacturing, agriculture, tourism, hospitality and aviation.
Cosatu’s national spokesperson, Sizwe Pamla, said the central bank must show leadership and cut the interest rate by 100 basis points in light of the envisaged damage to the country’s economy as a result of the coronavirus. The bank’s monetary policy committee is expected to meet on Thursday to review the prime lending rate, which is a determinant for commercial banks to increase or decrease the interest rate.
“The US, Russia and other countries’ reserve banks have moved decisively to slash interest rates. The SARB needs to show similar leadership and decisiveness. It needs to cut the prime lending rate by at least 100 basis points tomorrow and a further 100 BP cut in April, depending on the economic situation,” Pamla said.
Anything less would be insufficient and in fact, may provoke a run on the markets and further decimate pension and investment funds. A 50 or 25 BP cut would simply not be enough. It would be tantamount to a plaster for a head wound, he said.
Pamla said the monetary policy as the domain of the Reserve Bank had a profound impact on the South African economic environment and the ability of the country to meet its development goals. “Monetary policy influences the conditions under which the private financial sector can create credit, it determines the growth rate of the money supply and the level of interest rate,” he said.
“This interest rate, perhaps the most influential price in the economy, then impacts on core areas of economic activity – aggregate demand, investment, inflation, and the sustainability of the public sector. This means that they decide the amount of money that is lent out, to whom and for what purpose, therefore holding the power to reshape the economic landscape that affects us all.
“The reserve bank, therefore, has a responsibility to regulate this creation of the new money supply and this is very critical during this period of economic crisis. Determination of monetary policy is therefore not a purely technical question but has profound implications for all aspects of economic life,” Pamla said.
“Equally, the commercial banks must now come to the party. They have to drastically slash lending rates. They must do so now. There is simply no time to waste. The banks are sitting on R7 trillion worth of assets. They have space to help save the economy, jobs, and pensions,” Pamla said.